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.HI 


CO 


Presented  to  the 

LIBRARY  of  the 

UNIVERSITY  OF  TORONTO 

by 

NORAH  DE  PENGIER 


ELEMENTS    OF    ECONOMICS 


VOL.    I. 


ELEMENTS  OF 


ECONOMICS  OF   INDUSTKY 


BEING   THE   FIRST  VOLUME   OF 


ELEMENTS  OF  ECONOMICS 


BY 


ALFRED    MARSHALL 

Professor  of  Political  Economy  in  the  University  of  Cambridge, 
Honorary  Fellow  of  Balliol  College,  Oxford. 


SECOND   EDITION 

{Fifth  Impression). 

HontJon: 
MACMILLAN    AND    CO.,    Limited. 

NEW  YORK:   THE   MACMILLAN  COMPANY. 
1898 


[All  Rights  reserved.] 

^_ECRee  ,,r.-_..v.' 


ni 

Mas 


First  Edition  printed  1892.     Reprinted  1893,  1894. 
Second  Edition  1896,  1898. 


'■^'OV 1 5  1965 

1022143 


PREFACE  TO  THE  FIRST  EDITION. 


THIS  Volume  is  an  attempt  to  adapt  the  first  Volume  of 
my  Principles  of  Eeonomics  (Second   Edition,    1891), 
to  the  needs  of  junior  students. 

The  necessary  abridgement  has  been  effected  not  by  syste- 
matic compression  so  much  as  by  the  omission  of  many 
discussions  on  points  of  minor  importance  and  of  some  difficult 
theoretical  investigations.  For  it  seemed  that  the  difficulty 
of  an  argument  would  be  increased  rather  than  diminished 
by  curtailing  it  and  leaving  out  some  of  its  steps.  The  argu- 
mentative parts  of  the  Principles  are  therefore  as  a  rule  either 
reproduced  in  full  or  omitted  altogether;  reference  in  the 
latter  case  being  made  in  footnotes  to  the  corresponding 
places  in  the  larger  Treatise.  Notes  and  discussions  of  a 
literary  character  have  generally  been  omitted. 

The  influence  of  Trade-Unions  on  wages  depends  much 
on  the  course  of  Foreign  Trade  and  on  Commercial  Fluctua- 
tions; and  therefore  in  the  Principles  all  discussion  of  the 
subject  is  postponed  to  a  late  stage.  But  in  the  present  Volume, 
the  practical  convenience  of  discussing  it  in  close  connection 
with  the  main  theory  of  Distribution  seemed  to  outweigh 
the  disadvantages  of  treating  it  prematurely  and  in  some 
measure  incompletely ;  and  a  Chapter  on  Trade-Unions  has 
been  added  at  the  end  of  Book  VI. 

A  few  sentences  have  been  incorporated  from  the  Economics 
of  Industry  J  published  by  my  wife  and  myself  in  1879. 


VI  PREFACE. 

Though  she  prefers  that  her  name  should  not  appear 
on  the  title-page,  my  wife  has  a  share  in  this  Volume  also. 
For  in  writing  it,  and  in  writing  the  Principles,  I  have  been 
aided  and  advised  by  her  at  every  stage  of  the  MSS.  and  the 
proofs  -J  and  thus  the  pages  which  are  now  submitted  to  the 
reader  are  indebted  twice  over  to  her  suggestions,  her  judg- 
ment and  her  care. 

Dr  Keynes,  Mr  John  Burnett  and  Mr  J.  S.  Cree  have  read 

the  proofs  of  the  Chapter  on  Trade-Unions,  and  have  given 

me  helpful  advice  with  regard  to  it  from  three  different  points 

of  view. 

18  February,  1892. 

*^*  The  changes  In  this  edition  follow  those  made  in  the 
third  edition  of  my  Principles.  Book  I.  Ch.  iv.  and  v.  and 
Book  III.  Ch.  VI.  have  been  rewritten  in  order  to  make  more 
clear  how  closely  the  economist  adheres  in  substance  to  the 
methods  of  inference  and  judgment  of  ordinary  life ;  and  how 
thorough  are  the  harmony  and  the  mutual  dependence  be- 
tween the  analytical  and  the  historical  methods  of  economic 
study.  In  Book  II.,  Ch.  iv.  and  v.  have  been  thrown  to- 
gether to  make  a  new  Chapter  iv. ;  the  old  definition  of 
Capital  regarded  from  the  point  of  view  of  the  business  man 
is  retained;  but  Capital  is  defined  from  the  general  point  of 
view  as  wealth  which  yields  "income"  in  forms  that  are 
admitted  in  the  broader  use  of  the  term  in  the  market  place. 
Book  VI.  Ch.  I.  and  ii.  have  been  recast,  with  further 
explanations,  and  a  fuller  rehearsal  of  the  chief  results 
obtained  in  the  earlier  Books. 

June  1896. 


CONTENTS. 

[Italics  are  tised  to  (/ire  references  to  definitions  of  technical  terms.'] 

BOOK  I. 

PKELIMINAKY   SUEVEY. 

Chapter  I.  Introduction.  §  1.  Economics  is  a  study  of  wealth,  and  a 
part  of  the  study  of  man,  §  2.  Urgency  of  the  problem  of  poverty. 
I  3.  Economics  is  a  science  of  recent  growth.  §  4.  Characteristics  of 
modern  business.  Free  Industry  and  Enterprise.  §  5.  Preliminary 
account  of  value        .        .       ■ pp.  1 — 0 

Chapter  II.    The  Growth  of  Free  Industry  and  Enterprise.    §  1. 

Early  civilizations.  Influence  of  climate  and  of  custom.  §  2.  The 
Middle  Ages.    Free  towns.    §  3.    New  forces  promoting  freedom. 

pp.  10—13 
Chapter  III.  The  Growth  of  Free  Industry  and  Enterprise  con- 
tinued. §  1.  Englishmen  early  developed  a  faculty  for  organized 
action.  §  2.  Influence  of  the  Reformation.  §  3.  Beginnings  of  modern 
forms  of  business  management.  §  4.  Else  of  the  factory  system.  The 
new  organization  accompanied  by  great  evils.  §§  5,  6.  Many  of  these 
were  due  to  the  pressure  of  war,  taxes  and  bad  harvests ;  and  competition 
was  seen  at  its  worst.  But  now  with  the  increase  of  knowledge  and 
wealth  we  should  seek  to  restrain  its  evil  and  to  retain  its  good 
influences pp.  14 — 25 

Chapter  IV.  The  Growth  of  Economic  Science.  §  1.  Origin  of 
modern  Economics.  Early  regulation  of  trade.  §  2.  The  Physiocrats. 
Adam  Smith.  §  3.  Eicardo  and  his  followers.  §  4.  Mill  and  modern 
Economics pp.  26 — 32 

Chapter  V.  The  Scope  ol  !Ccononiics.  §  1.  Economics  as  a  social 
science.  §§  2 — 4.  Chiefly  concerned  with  motives  that  are  measurable, 
but  not  exclusively  selfish.  Difiiculties  of  measui'ement.  §  5.  The 
desire  for  money  is  the  result  of  many  various  motives.  Motives  to  col- 
lective action.  §  6.  Economics  deals  mainly  with  one  side  of  life,  but 
not  with  the  life  of  fictitious  beings pp.  33 — 41 

Chapter  VI.    Methods  of  Study.    Nature  of  Economic  Law.    §§  1,  3. 

Induction  and  deduction  are  inseparable.  Neither  reasoning  alone  nor 
observation  alone  is  of  much  service.  §  4.  Uses  of  the  machinery  of 
science.  §§  5,  6.  Social  Laio.  Economic  Law.  Normal.  The  Action, 
of  a  Law pp.  42 — 48 

Chapter  VII.  Summary  and  Conclusion.  §  1.  Order  of  economic 
inquiries.  Relation  of  science  to  practice.  §  2.  Questions  to  be  in- 
vestigated. §  3.  Practical  issues  lying  partly  within  the  range  of 
Economics pp.  49 — 53 


Vlll  CONTENTS. 

BOOK   11. 

SOME  FUNDAMENTAL  NOTIONS. 

Chapter  I.    Introductory.    §  1.    Difficulties  of  definition  in  Economics. 

pp.  54 — 55 

Chapter  II.  Wealth.  §  1.  Classification  of  Gooda.  Wealth.  §  2.  Per- 
sonal Wealth.    Broad  meaning  of  wealth.     §  3.    Collective  Goods. 

pp.  56—61 

Chapter  III.     Production.     Consumption.     Labour.     Necessaries. 

§  1.  Man  produces  and  consumes  only  utilities.  Consumption  and  Pro- 
duction Goods.  §  2.  Productive  labour  and  Productive  consumption. 
§  3.  Necessaries  for  existence  and  for  efficiency.  Conventional  neces- 
saries     ...........        pp.  62 — 65 

Chapter  IV.  Capital.  Income.  §  1.  The  term  Capital  has  many  uses. 
It  includes  Trade  Cajntal.  §  2.  Social  Capital  is  wealth  which  yields 
income  as  commonly  understood.  §  3.  Circulating,  Fixed,  Specialized 
and  Personal  Capital.  Consumption  and  Auxiliary  Capital.  §  4.  Net 
Income.  §  5.  Net  Advantages.  Interest.  Profits.  Earnings  of  Manage- 
ment.   Rent.     §  6.    Social  Income pp.  66 — 74 


BOOK  III. 

DEMAND   OK  CONSUMPTION. 

Chapter  I.  Introductory.  §  1.  Relation  of  Book  III.  to  the  rest  of  the 
volume p.  75 

Chapter  II.  Wants  in  relation  to  Activities.  §§  1—3.  Wants  are 
progressive.  Desire  for  variety  and  distinction.  §  4.  Desire  for  excel- 
lence.   Eelation  of  Wants  to  Activities         ....        pp.  76 — 80 

Chapter  III.  The  Law  of  Demand.  §  1.  The  Law  of  Satiable  Wants 
or  Diminishing  Utility.  Total  Utility.  Marginal  Increment.  Mai'ginal 
Utility.  §  2.  Marginal  Demand  Pnce.  §  3.  The  marginal  utility  of 
money  varies.  §  4.  A  person's  Demand  Schedule.  §  5.  Demand  of  a 
Market.    Law  of  Demand pp.81 — 87 

Chapter  IV.    Law  of  Demand,  continued.    Elasticity  of  Demand. 

§  1.  Elasticity  of  Demand  §§  2,  3  varies  with  diflferent  incomes. 
§  4.  Demand  for  Necessaries.  §  5.  Causes  that  obscure  the  influence 
of  price  on  demand pp.  88 — 93 

Chapter  V.  The  Choice  between  different  uses  of  the  same  thing. 
Immediate  and  deferred  uses.  §§  1,  2.  Distribution  of  me.ms 
between  different  uses.  §  3.  Distribution  between  present  and  future 
needs.    Discounting  future  pleasures pp.  94 — 97 

Chapter  VI.  Value  and  Utility.  §§  1 — 3.  The  doctrine  of  Consumers' 
Rent  gives  definite  expression  to  a  familiar  notion.  Allowance  for  collec- 
tive wealth.    §  4.    Wisdom  in  the  pursuit  and  use  of  wealth    pp.  98 — 106 


CONTENTS.  IX 


BOOK  IV. 

THE  AGENTS   OF  PRODUCTION. 
LAND,  LABOUR,    CAPITAL  AND   ORGANIZATION. 

Chapter  I.  Introductory.  §  1.  The  agents  of  production.  §§  2,  3. 
Marginal  disutility.  Although  work  is  sometimes  its  own  reward  it  gene- 
rally has  a  supply  price.    Supply  Schedule.    Supply  Price      pp.  107 — 110 

Chapter  II.  The  Fertility  of  Land.  §  1.  Land  in  what  sense  a  free 
gift  of  nature.  §  2.  Conditions  of  fertility.  Man's  power  of  altering  the 
character  of  the  soil pp.111 — 114 

Chapter  III.  The  Fertility  of  Land,  continued.  The  Law  of 
Diminishing  Return.  §  1.  The  basis  of  the  Laio  of  Diminishing 
Eeturn.  The  return  is  measured  by  the  amount  not  the  price  of  produce. 
§  2.  A  Dose  of  capital  and  labour,  marginal  dose,  marginal  i-etwn,  margin 
of  cultivation.  Surplus  Produce.  Its  relation  to  rent.  §  3.  The  Order 
of  relative  fertility  changes  with  circumstances.  §  4.  Good  cultivation  a 
relative  term.  §  5.  Misunderstandings  of  Ricardo's  doctrine.  §  6.  Addi- 
tions to  it.    §  7.    The  return  from  fisheries,  mines  and  building  ground. 

pp.  115—128 

Chapter  IV.    The  Growth  of  Population.     §  1.    Malthus.     §§  2,  3. 

C3flS6i?^hat  determine  marriage-rate  and  birth-rate.     §  4.    History  of 

population  in  England.     §  5.    Modern  causes  affecting  marriage-rate. 

pp.  129-136 

Chapter  V.    The  Health  and  Strength  of  the  Population.    §§  1,  2. 

Geniiral  conditions  of  health  and  strength.  §  3.  Hope,  freedom  and 
change.  §  4.  Influence  of  occupation.  Town  life.  §  5.  Nature's  ten- 
dency to  select  the  strongest  for  survival  is  often  counteracted  by  man. 

pp.  137—145 

_  '"I.  Industrial  Training.  §  1.  Unskilled  labour  a  relative 
term.  Tleneral  and  Specialized  Ability.  §§  2,  3.  Liberal  and  Technical 
Education.  Apprenticeships.  §  4.  Education  as  a  National  investment. 
§  5.  Mill's  four  industrial  grades ;  but  sharp  lines  of  division  are  fading 
away pp.  146 — 154 

ChaQt£X-^|9I«-  The  Growth  of  Wealth.  §  1.  Early  and  modem  forms 
Cf-tTealtii.  §  2.  Slow  growth  of  habits  of  saving.  §  3.  Security  as  a 
condition  of  saving.  §  4.  The  chief  motive  of  saving  is  family  affection. 
§  5.  The  source  of  accumulation  is  surplus  income.  Profits.  Rent  and 
Earnings.  Collective  savings.  §  6.  Interest  is  the  reward  of  waiting. 
Influence  of  changes  in  the  rate  of  interest  on  saving  .        .    pp.  155 — 164 

Chapter  VIII.  Industrial  Organization.  §  1.  Organization  increases 
efficiency.  Teachings  of  biology.  The  law  of  the  struggle  for  survival. 
§  2.    Harmonies  and  discords  between  individual  and  collective  interests. 

pp.  165—167 

Chapter  IX.  Industrial  Organization,  continued.  Division  of  La- 
bour. The  Influence  of  Machinery.  §  1.  Practice  makes  perfect. 
The  provinces  of  manual  labour  and  machinery.  §  2.  Interchangeable 
parts.  Machinery  increases  the  demand  for  general  intelligence  and 
weakens  barriers  between  different  trades.  §  3.  It  relieves  the  strain 
on  human  muscles,  and  thus  prevents  monotony  of  work  from  involving 


X  CONTENTS. 

monotony  of  life.  §  4.  Specialized  skill  and  specialized  machinery  com- 
pared.   External  and  Internal  economies     ....    pp.  168 — 176 

Chapter  X.  Industrial  Organization,  continued.  The  Concentra- 
tion of  Specialized  Industries  in  Particular  Localities.    §  1. 

Primitive  fonns  of  localized  industi'ies ;  their  various  origins.  §  2.  Ad- 
vantages of  localized  industries ;  hereditary  skill,  subsidiary  trades,  spe- 
cialized machinery,  local  market  for  skill.  Their  disadvantages.  Move- 
ments of  English  industries PP.  177 — 181 

Chapter  XI.  Industrial  Organization,  continued.  Production  on 
a  large  scale.  §§  1,  2.  Advantages  of  a  large  producer  as  to  economy 
of  material,  specialization  of  and  improvements  in  machinery,  buying  and 
selling;  specialized  skill,  especially  in  matters  of  management,  but  the 
small  producer  makes  many  detailed  savings        .        .        .    pp.  182 — 187 

Chapter  XII.  Industrial  Organization,  continued.  Business 
Management.  §  1.  Various  forms  of  business  management  classified 
with  reference  to  the  tasks  of  undertaking  risks  and  of  superintendence. 
§  2.  Faculties  required  in  the  ideal  manufacturer.  §  3.  Hereditary 
businesses,  why  they  are  not  more  common.  §  4.  Private  partnerships. 
§  5.  Joint-stock  companies.  Government  imdertakings.  §  6.  Co-opera- 
tion. Profit  Sharing.  §  7.  The  rise  of  the  working  man  hindered  by 
his  want  of  capital  and  even  more  by  the  growing  complexity  of  business. 
§  8.  Adjustment  of  capital  to  business  ability.  Net  and  Gross  Earnings 
of  Management pp.  188—204 

Chapter  XIII.  Conclusion.  The  Law  of  Increasing  in  Relation 
to  that  of  Diminishing  Return.  §  1.  Eelation  of  the  later  chap- 
ters of  this  Book  to  the  earlier.  A.  Representative  Finn.  The  Lairs  of 
Increasing  and  Constant  Return.  §  2.  Conditions  under  which  an 
increase  of  numbers  leads  to  a  more  than  proportionate  increase  of 
collective  efficiency pp.  205 — 209 


BOOK   V. 

THE  THEORY  OF  THE  EQUILIBEIUM  OF  DEMAND  AND 
SUPPLY. 

Chapter  I.  On  Markets.  §  1.  Most  economic  problems  have  a  common 
kernel  relating  to  the  equilibrium  of  supply  and  demand.  §  2.  Definition 
of  a  Marhet.  §§  3,  4.  Lmiitations  of  a  market  with  regard  to  space. 
Conditions  of  a  wide  market.     Grading.     Portability.    World  markets. 

pp.  210—215 

Chapter    II.     Temporary   Equilibrium    of  Demand    and   Supply. 

§  I^  Equilibrium  between  desire  and  effort.  Illustration  from  a  local 
corn-market  of  a  true  though  temporary  equilibrium  .        .    pp.  216 — 218 

Chapter  III.    Equilibrium  of  Normal  Demand  and  Supply.    §  1. 

Transition  from  market  to  normal  price.  §  2.  Real  and  Money  Cost  of 
Production.  Expenses  of  Production.  Factors  of  Productio7i.  Rent  in 
relation  to  Expenses  of  production.  §  3.  The  Law  of  8id)stitiition. 
§  4.^  Basis  of  the  general  theory.  The  Supply  Schedule.  §  5.  Equi- 
librium amount  and  equilihrium  price.     §  6.    Influence  of  Utility  and 


CONTENTS.  XI 

Cost  of  Production  on  value.  The  former  preponderates  in  market  values, 
the  latter  in  normal  values pp.  219 — ^229 

Chapter  IV.  The  Investment  of  Capital  in  a  Business.  Prime 
Cost  and  Total  Cost.  §  1.  Motives  determining  the  investment  of 
capital.  §  2.  Different  routes  are  chosen  in  obtaining  the  same  end. 
The  margin  of  profitableness.  §  3.  Prime  Cost.  Supplementary  and 
Total  Cost pp.  230— 233 

Chapter  V.  Equilibrium  of  Normal  Demand  and  Supply,  Con- 
tinued. The  Term  Normal  with  Reference  to  Long  and  Short 
Periods.  §§  1 — 3.  Elasticity  of  the  term  normal.  Long  and  short 
period  normal  prices.  Illustrations.  §  4.  The  general  drift  of  the  term 
Normal  Supply  Price  is  the  same  for  short  and  long  periods.  But  for 
short  periods  the  appliances  of  production  have  to  be  taken  for  granted ; 
meanwhile  the  income  derived  from  them  affords  a  Quasi-rent. 

pp.  234—243 

Chapter  VI.  Joint  and  Composite  Deniand.  Joint  and  Composite 
Supply.  §  1.  Derived  demand  and  joint  demand.  Illustration,  taken 
from  a  labour  dispute.  §  2.  Conditions  under  which  a  check  to  supply 
may  raise  much  the  price  of  a  factor  of  production.  Moderating  influence 
of  the  Law  of  Substitution.  §  3.  Composite  demand.  §  4.  Joint  Supply. 
§  5.  Composite  Supply pp.  244 — 249 

Chapter  VII.  Prime  and  Total  Cost  in  relation  to  Joint  Products. 
Cost  of  Marketing.  Insurance  against  Risk.  §  1.  Difhculties  as 
to  the  joint  products  of  the  same  business  and  as  to  the  expenses  of 
marketing.     §  2.    Insurance  against  risk     ....    pp.  250 — 253 

Chapter   VIII.     Changes    of  Demand   and   Supply.     Monopolies. 

§  1.  Effects  of  an  increase  of  normal  demand  on  price.  §  2.  Monopoly 
price.  Relation  between  the  interests  of  monopoly  jiroducers  and  of  con- 
sumers     pp.  254 — 257 


BOOK   VI. 

VALUE,    OR  DISTRIBUTION   AND  EXCHANGE. 

Chapter  I.    Preliminary  Survey  of  Distribution  and  Exchange. 

§  1.  The  Physi6crats.  Adam  Smith.  Malthus  and  Ricardo.  J.  S.  Mill. 
§§  2—5.  Illustrations  of  the  influence  of  demand  in  distribution.  §§  6,  7. 
The  Law  of  Substitution  in  relation  to  demand  for  labour,  and  for  capital. 
§  8.    The  National  Dividend pp.  258—270 

Chapter  II.  Preliminary  Survey  of  Distribution  and  Exchange, 
continued.  §§  1 — 3.  Recapitulation  of  causes,  discussed  in  Book  IV., 
which  govern  the  supply  of  various  forms  of  labour  and  capital.  These 
causes  play  a  part  coordinate  with  those  affecting  demand  in  governing 
distribution.  §  4.  Land  is  on  a  different  footing.  §  5  Mutual  relations 
between  earnings  and  eflBciencies  of  different  groups  of  workers.  §  6. 
Competition  is  not  supposed  to  be  perfect,  but  to  act  as  it  does  in  real  life. 
§  7.  Provisional  conclusion  as  to  the  general  relations  of  capital  and 
labour.    The  so-called  Wages-fund pp.  271—286 


XU  CONTENTS. 

Chapter  III.  Demand  and  Supply  in  relation  to  Labour.  Real 
and  Nominal  Earnings.  §  1.  Time-earnings.  Payment  by  Piece- 
vork.  Kificiency- earnings.  Time-earnings  do  not  tend  to  equality,  but 
Efficiency-earnings  do.  §  2.  Ileal  loages  and  Nominal  wages.  §  3.  Un- 
certainty of  success.  Irregularity  of  employment.  Supplementary  earn- 
ings.    §  4.     The  attractiveness  of  a  trade  depends  on  its  Net  Advantages. 

pp.  287—295 

Chapter  IV.  Demand  and  Supply  in  relation  to  Labour,  con- 
tinued. §  1.  Many  peculiarities  in  the  action  of  demand  and  supply 
with  regard  to  labour  are  cumulative  in  their  effects.  §§  2 — 4.  The 
Avorker  sells  his  work,  but  he  himself  has  no  price,  consequently  the 
investment  of  capital  in  him  is  limited  l)y  the  means,  forethought  and 
unselfishness  of  his  parents.  Economic  importance  of  moral  forces. 
§  5.  The  seller  of  labour  must  deliver  it  himself.  §  6.  Labour  is  perish- 
able, and  the  sellers  of  it  are  often  at  a  disadvantage  in  bargaining. 

pp.  296—304 

Chapter  V.  Demand  and  Supply  in  relation  to  Labour,  con- 
cluded. §  1.  Slowness  of  growth  of  new  supplies  of  labour.  Difficulties 
of  forecasting  the  future.  §  2.  The  movements  of  adult  labour  are  of 
increasing  importance.  §  3.  Fluctuations  of  earnings  chiefly  governed 
by  those  of  demand.  §  4.  Causes  which  determine  earnings  during  long 
and  short  periods  respectively pp.  305 — 309 

Chapter  VI.  Demand  and  Supply  in  relation  to  Capital.  Gross 
and  Net  Interest.  §  1.  Interest  on  capital  has  been  jealously  scruti- 
nized ;  and  not  altogether  without  reason :  but  it  is  as  truly  a  return  for 
services  rendered  as  the  wages  of  labour  are.  §§  2,  3.  Net  and  Gross 
interest.  Gross  interest  includes  some  Insurance  against  risks  both 
Trade  and  Personal,  and  also  Earnings  of  Management,  and  therefore 
does  not  tend  to  equality  as  net  interest  does       .        .        .    pp.  310 — 314 

Chapter  VII.  Demand  and  Supply  in  relation  to  Capital,  Busi- 
ness Power  and  Industrial  Organization.  §  1.  Action  of  the 
Struggle  for  Survival.  Services  of  those  who  pioneer.  §  2.  Action  of 
the  Law  of  Substitution  in  controlling  Earnings  of  Management.  §  3.  The 
Law  of  Substitution  acts  through  the  employer  and  also  on  him.  The 
business  man  working  with  borrowed  capital.  §  4.  Joint  Stock  com- 
panies. §  5.  The  supply  of  business  ability  is  drawn  from  a  wide  area 
and  is  non-specialized.  The  adjustment  of  Earnings  of  Management  to 
the  difficulty  of  the  work  to  be  done  is  fairly  accurate  .        .    pp.  315 — 322 

Chapter  VIII.  Demand  and  Supply  in  relation  to  Capital  and 
Business  Power,  concluded.  §  1.  Profits.  Mate  of  profits  how  far 
tendmg  to  equality.  Profits  in  small  bushiesses  appear  higher  than  they 
are.  Rate  of  profits  declines  generally  as  the  size  of  the  business  in- 
creases. §  2.  Profits  are  high  where  the  Circulating  Capital  is  large 
relatively  to  the  Fixed.  §  3.  The  rate  of  profits  on  the  turnover  varies 
much  more  widely  than  the  annual  rate  of  profits  on  capital.  §  4.  Profits 
are  a  constituent  element  of  normal  supply-price,  but  the  income  derived 
from  capital  already  invested  is  generally  determined  by  the  price  of  the 
product  (and  is  a  Quasi-rent).  §§  5,  6.  The  earnings  of  business  power 
fluctuate  more  and  vary  more  from  one  individual  to  another  than  ordi- 
nary earnings  do PP.  323 — 330 


CONTENTS.  Xiu 

Chapter  IX.  Demand  and  Supply  in  relation  to  Land.  Pro- 
ducers' Surplus.  §  1.  General  view  of  the  causes  that  determine 
Producers'  Sui-phis.  §  2.  The  argument  so  far  applicable  to  nearly  all 
systems  of  land  tenure PP.  331 — 334 

Chapter  X.  Demand  and  Supply  in  relation  to  Land,  continued. 
Land  Tenure.  §  1.  Early  forms  of  Land-tenure  have  generally  been 
based  on  partnerships.  §  2.  Metayage  or  rental  by  shares.  Peasant- 
proprietorship,  its  advantages  and  disadvantages.  The  American  farmer. 
§  3.  The  English  system  enables  the  landlord  to  supply  that  capital  over 
which  he  can  keep  control  and  it  gives  considerable  fi'eedom  of  selection. 
§§  4,  5.  Large  and  small  holdings.  Allotments.  Co-operation.  §  6.  Con- 
flict between  public  and  private  interests  in  the  matter  of  building  on 
open  spaces PP-  335 — 345 

Chapter  XI.  General  view  of  Distribution.  §  1.  Eesum^  of  the  gene- 
ral theory  of  equilibrium  of  demand  and  supply.  §§  2 — 4.  In  the  last 
eight  chapters  is  traced  a  thread  of  continuity  transverse  to  that  in  Book 
v.,  and  establishing  a  unity  between  the  causes  that  govern  the  normal 
values  of  the  various  agents  and  appliances  of  production,  material  and 
human.  §  5.  The  various  agents  of  production  are  the  sole  source  of 
employment  for  one  another.  How  an  increase  of  capital  enriches  the 
field  for  the  employment  of  labour.  §  6.  Eelations  between  the  interests 
of  different  classes  of  workers  in  the  same  trade.  §  7.  Trade-unions 
and  combinations  among  employers  tend  to  make  the  problem  of  distribu- 
tion indeterminate pp.  346 — 357 

Chapter  XII.  The  Influence  of  Progress  on  Value.  §  1.  The  rich- 
ness of  the  field  of  employment  for  capital  and  labour  in  a  new  country 
depends  partly  on  its  access  to  markets  in  which  it  can  sell  its  goods  and 
mortgage  its  future  income  for  present  supphes  of  what  it  wants.  §  2. 
England's  direct  gains  from  the  progress  of  manufactures  have  been  less 
than  at  first  sight  appears,  but  those  from  the  new  means  of  transport 
have  been  greater.  §  3.  Changes  in  the  labour  values  of  corn,  meat, 
house-room,  fuel,  clothing,  water,  light,  news  and  travel.  §  4.  Progress 
has  raised  the  labour  value  of  English  land,  urban  and  rural,  taken 
together.  §  5.  The  increase  of  capital  has  lowered  its  proportionate  but 
not  its  total  income.  §§  6,  7.  Changes  in  the  earnings  of  different  indus- 
trial classes.  §  8.  Earnings  of  exceptional  ability.  §  9.  Progress  has 
probably  lessened  inconstancy  of  employment.  §  10.  Broader  influence 
of  progress.  Standard  of  Comfort  and  Standard  of  Life.  §  11.  Pro- 
gress in  relation  to  leisure.  The  wastefulness  of  excessive  work.  §  12. 
In  some  trades  shorter  hours  combined  with  double  shifts  would  bring 
almost  unmixed  gain.  §  13.  But  in  many  trades  shortening  the  hours  of 
labour  would  lessen  the  output.  §§  14,  15.  Fallacies  underlying  the 
opinion  that  a  general  lessening  of  the  hours  of  labour  would  raise  wages. 
§  16.  General  conclusion  as  to  the  good  and  evil  of  a  reduction  of  the 
hours  of  labour pp.  358 — 389 

Chapter  XIII.  Trade-Unions.  §  1.  Early  history  of  Trade-unions. 
§  2.  General  organization.  §  3.  Opening  of  inquiry  as  to  the  influence 
they  can  exert  on  wages.  Kecapitulation  of  effects  of  a  permanent  limita- 
tion of  the  supply  of  labour.  §§  4,  5.  Transition  to  effects  of  temporary 
limitations,  by  strikes  or  otherwise,  of  the  supply  of  labour.  Disadvan- 
tage in  bargaining  of  the  isolated  workman  without  reserve.  Claim  of 
"Unions  to  make  economic  friction  side  with,  instead  of  against,  the  work- 


XIV  CONTENTS. 

man;  and  thus  to  raise  wages  generally.  §§  6 — 8.  Rejoinder  by  oppo- 
nents of  Unions.  §  9.  The  issue  turns  mainly  on  the  question  whether 
Unions  on  the  whole  hamper  business  and  lessen  production;  and  this 
needs  some  detailed  study  of  their  chief  modes  of  procedure  under  the 
heads  of :— §  10.  Strikes ;  §  11,  Fixed  local  minimum  wage ;  and  §  12. 
Piece-work.  §  13.  In  trades  much  subject  to  foreign  competition  Unions 
generally  follow  an  enlightened  policy  and  facilitate  business.  §  14. 
Other  trades  in  which  strong  Unions  may  on  the  whole  facilitate  business. 
§  15.  Influence  on  the  National  Dividend  exerted  by  combinations  of 
employers  and  of  employed  in  trades  not  much  subject  to  external  compe- 
tition. §§  16,  17.  Influence  of  Unions  on  the  character  and  efficiency 
of  the  worker.  §  18.  Facts  seem  to  show  that,  other  things  being  equal, 
wages  are  generally  high  in  trades  that  have  strong  Unions  relatively  to 
those  that  have  not ;  but  they  do  not  enable  us  to  determine  what  is  the 
effect  of  Unions  on  the  aggregate  of  wages.  §§  19,  20.  Smnmary  and 
general  conclusions.  Moral  and  economic  aspects  of  the  problem.  Power 
and  responsibihty  of  public  opinion pp.  390—427 


References  to  the  "Principles"  are  generally  applicable  to  its  second  and 
third  Editions,  except  vjhen  "Ed.  III."  is  added.  Most  of  them  are  applicable 
also  to  the  first  Edition,  if  it  be  remembered  that  Booh  VI.  of  the  first  Edition 
was  absorbed  into  the  latter  part  of  Booh  V.  of  the  second  and  third;  and  that 
conseqtiently  Booh  VI.  of  the  new  editions  corresponds  to  Booh  VII.  of  the  first 
Edition. 


BOOK   I. 

PRELIMINARY   SURVEY. 
CHAPTER   I. 

INTRODUCTION. 

§  1.  Political  Economy,  or  Economics,  is  a  study  of 
man's  actions  in  the  ordinary  business  of  life;  it  Economics  is 
inquires   how  he  gets   his    income    and    how  he     a  study  of 

...  ,  .  ,  III!      wealth,  and  a 

uses  it.     Ihus  it  IS  on  the  one  side  a  study  or     part  of  the 
wealth,  and  on  the  other,  and  more  important     study  of  man. 
side,  a  part  of  the  study  of  man.     Eor  man's  character  has 
been  moulded  "by  his  every-day  work,  and  by  the  material  re- 
sources which  he  thereby  procures,  more  than  by  any  other 
influence  unless  it  be  that  of  his  religious  ideals ;  and  the  two 
great  forming  agencies  of  the  world's  history  have  been  the 
religious  and  the  economic.     Here  and  there  the  ardour  of 
the  military  or  the  artistic  spirit  has  been  for  a  while  pre- 
dominant :  but  religious  and  economic  influences  have  nowhere 
been   displaced  from   the  front  rank   even  for  a  time;   and 
they  have  nearly  always  been  more  important  than  all  others 
put  together.     Religious  motives  are  more  intense  than  eco- 
nomic; but  their  direct  action  seldom  extends  over  so  large  a 
part  of  life.     For  the  business  by  which  a  person     Character 
earns  his  livelihood  generally  fills  his    thoughts     formed  by 
during  by  far  the  greater  part  of  those  hours  in      ^^  ^  ^°^  ' 
which  his  mind  is  at  its  best;  during  them  his  character  is 
being  formed  by  the  way  in  which  he  uses  his  faculties  in 

M.  ^  1 


2  BOOK  I.    CH.  I.   §§  1,  2. 

his  work,  by  the  thoughts  and  the  feelings  which  it  suggests, 
and  by  his  relations  to  his  associates  in  work,  his  employers 
or  his  employes. 

And  very  often  the  influence  exerted  on  a  person's 
character  by  the  amount  of  his  income  is  hardly  less,  if  it 
is  less,  than  that  exerted  by  the  way  in  which  it  is  earned. 
Poverty  causes  I^  makes  little  difference  to  the  fulness  of  life 
degradation.  ^f  ^  family  whether  its  yearly  income  is  .£1000 
or  ^5000.  But  it  makes  a  very  great  difference  whether  the 
income  is  £30  or  £150:  for  with  £150  the  family  has,  with 
£30  it  has  not,  the  material  conditions  of  a  complete  life. 
It  is  true  that  in  religion,  in  the  family  affections  and  in 
friendship,  even  the  poor  may  find  scope  for  many  of  those 
faculties  which  are  the  source  of  the  highest  happiness. 
But  the  conditions  which  surround  extreme  poverty,  especially 
in  densely  crowded  places,  tend  to  deaden  the  higher  faculties. 
Those  who  have  been  called  the  Residuum  of  our  large  towns 
have  little  opportunity  for  friendship ;  they  know  nothing  of 
the  decencies  and  the  quiet,  and  very  little  even  of  the  unity 
of  family  life;  and  religion  often  fails  to  reach  them.  No 
doubt  their  physical,  mental,  and  moral  ill-health  is  partly 
due  to  other  causes  than  poverty,  but  this  is  the  chief  cause. 

And  in  addition  to  the  Residuum  there  are  vast  numbers 
of  people  both  in  town  and  country  who  are  brought  up  with 
insufiicient  food,  clothing,  and  house-room,  whose  education 
is  broken  off  early  in  order  that  they  may  go  to  work  for 
wages,  who  thenceforth  are  engaged  during  long  hours  in 
exhausting  toil  with  imperfectly  nourished  bodies,  and  have 
therefore  no  chance  of  developing  their  higher  mental  faculties. 
Their  life  is  not  necessarily  unhealthy  or  unhappy.  Rejoicing 
in  their  affections  towards  God  and  man,  and  perhaps  even 
possessing  some  natural  refinement  of  feeling,  they  may  lead 
lives  that  are  far  less  incomplete  than  those  of  many  who 
have  more  material  wealth.  But,  for  all  that,  their  poverty 
is  a  great  and  almost  unmixed  evil  to  them.     Even  when  they 


INTRODUCTION.  3 

are  well,  their  weariness  often  amounts  to  pain,  while  tlieir 
pleasures  are  few;  and  when  sickness  comes,  the  suffering 
caused  by  poverty  increases  tenfold.  And  though  a  contented 
spirit  may  go  far  towards  reconciling  them  to  these  evils, 
there  are  others  to  which  it  ought  not  to  reconcile  them. 
Overworked  and  undertaught,  weary  and  careworn,  without 
quiet  and  without  leisure,  they  have  no  chance  of  making 
the  best  of  their  mental  faculties. 

Although  then  some  of  the  evils  which  commonly  go  with 
poverty  are  not  its  necessary  consequences ;  yet,  broadly 
speaking,  "the  destruction  of  the  poor  is  thdrjpoverty,"  and 
the  study  of  the  causes  of^overfy  is  the  study  of  the  causes 
of  the  degradation  of  a  large  part  of  mankind. 

§  2.  Slavery  was  regarded  by  Aristotle  as  an  ordinance 
of  nature,  and  so  probably  was  it  by  the  slaves  is  poverty  ne- 
themselves  in  olden  time.  The  dignity  of  man  cessary? 
was  proclaimed  by  the  Christian  religion:  it  has  been  as- 
serted with  increasing  vehemence  during  the  last  hundred 
years:  but  it  is  only  through  the  spread  of  education  during 
quite  recent  times  that  we  are  beginning  at  last  to  feel  the 
full  import  of  the  phrase.  N^ow  at  last  we  are  setting  our- 
selves seriously  to  inquire  whether  it  is  necessary  that  there 
should  be  any  so-called  "lower  classes"  at  all:  that  is,  whether 
there  need  be  large  numbers  of  people  doomed  from  their 
birth  to  hard  work  in  order  to  provide  for  others  the  requisites 
of  a  refined  and  cultured  life;  while  they  themselves  are  pre- 
vented by  their  poverty  and  toil  from  having  any  share  or 
part  in  that  life. 

The  hope  that  poverty  and  ignorance  may  gradually  be 
extinguished  derives  indeed  much  support  from  the  steady 
progress  of  the  working  classes  during  the  present  century. 
The  steam-engine  has  relieved  them  of  much  exhausting 
and  degrading  toil;  wages  have  risen;  education  has  been 
improved  and  become  more  general;  the  railway  and  the 
printing-press  have  enabled  members  ^f  the  same    trade   in 

1—2 


4  BOOK  I.  CH.  I.  §§  2,  3,  4. 

different  parts  of  the  country  to  communicate  easily  with 
one  another,  and  to  undertake  and  carry  out  broad  and  far- 
seeing  lines  of  policy;  while  the  growing  demand  for  intel- 
ligent work  has  caused  the  artisan  classes  to  increase  so 
rapidly  that  they  now  outnumber  those  whose  labour  is 
entirely  unskilled.  A  great  part  of  the  artisans  have  ceased 
to  belong  to  the  "lower  jjlasses"  in  the  sense  in  which  the 
term  was  originally  used;  and  some  of  them  already  lead  a 
5  more  refined  and  noble  life  than  did  the  majority  of  the 
upper  classes  even  a  century  ago. 

This  progress  has  done  more  than  anything  else  to  give 
practical  interest  to  the  question  whether  it  is  really  impossible 
that  all  should  start  in  the  world  with  a  fair  chance  of 
leading  a  cultured  life,  free  from  the  pains  of  poverty  and 
the  stagnating  influences  of  excessive  mechanical  toil;  and 
this  question  is  being  pressed  to  the  front  by  the  growing 
earnestness  of  the  age. 

/  The  question  cannot  be  fully  answered  by  economic 
/  science ;  for  the  answer  depends  partly  on  the  moral  and 
>  political  capabilities  of  human  nature;  and  on  these  matters 
the  economist  has  no  special  means  of  information;  he  must 
do  as  others  do,  and  guess  as  best  he  can.  But  the  answer 
depends  in  a  great  measure  upon  facts  and  inferences,  which 
are  within  the  province  of  economics;  and  this  it  is  which 
gives  to  economic  studies  their  chief  and  their  highest  in- 
terest. 

§  3.  It  might  have  been  expected  that  a  science,  which 
Reasons  why  deals  with  questions  so  vital  for  the  well-being  of 
i^ThTSa'in  of  mankind,  would  have  engaged  the  attention  of 
recent  growth,  many  of  the  ablest  thinkers  of  every  age,  and  be 
now  well  advanced  towards  maturity.  But  the  bearing  of 
economics  on  the  higher  well-being  of  man  has  been  over- 
looked; and  it  has  not  received  that  share  of  attention  which 
its  importance  and  its  difficulty  require. 

Its  progress  has  been  hindered  also  by  the  fact  that  many 


INTRODUCTION.  5 

of  those  conditions  of  industrial  life,  and  of  those  methods  of 
production,  distribution  and  consumption,  with  which  modern 
economic  science  is  concerned,  are  constantly  changing,  and 
that  their  present  forms  are  only  of  recent  date\ 

§  4.  It  is  often  said  that  the  modern  forms  of  business 
are  distinguished  from  the  earlier  by  being  more 
competitive.  But  this  account  is  not  quite  satis- 
factory. The  strict  meaning  of  competition  seems  to  be  the 
racing  of  one  person  against  another,  with  special  reference  to 
bidding  for  the  sale  or  purchase  of  anything.  This  kind  of 
racing  in  business  is  no  doubt  both  more  intense  and  more 
widely  extended  than  it  used  to  be :  but  it  is  only  a  secondary, 
and  one  might  almost  say,  an  accidental  consequence  from  the 
fundamental  characteristics  of  modern  business. 

There  is  no  one  term  that  will  express  these  characteristics 
adequately.  They  are,  a.^,we  shall  presently  see,  a  certain 
independence  and  habit  of  choosing  one's  own  course  for  one- 
self, a  self-reliance;  a  deliberation  and  yet  a  promptness  of 
choice  and  judgment,  and  a  habit  of  forecasting  the  future 
and  of  shaping  one's  course  with  reference  to  distant  aims. 
They  may  and  often  do  cause  people  to  compete  with  one 
another;  but  on  the  other  hand  they  may  tend,  and  just  now 
indeed  they  are  tending,  in  the  direction  of  co-operation  and 
combination  of  all  kinds  good  and  evil.  But  these  tendencies 
towards  collective  ownership  and   collective  action  are  quite 


1  It  is  indeed  true  that  the  change  in  substance  is  in  some  respects  not  so 
great  as  the  change  in  outward  form ;  and  much  more  of  modern  economic 
theory  than  at  first  appears  can  be  adapted  to  the  conditions  of  backward 
races.  But  the  changes  in  form  have  hindered  Avriters  of  each  successive  age 
from  deriving  much  benefit  from  the  work  of  their  predecessors.  Modern 
economic  conditions  however,  though  very  complex,  are  in  many  ways  more 
definite  than  those  of  earlier  times :  business  is  more  clearly  marked  off  from 
other  concerns  of  life;  the  rights  of  individuals  as  against  others  and  as 
against  the  community  are  more  sharply  defined;  and  above  all  the  emancipa- 
tion from  custom,  and  the  growth  of  free  activity,  of  constant  forethought 
and  restless  enterpi-ise  have  given  a  new  precision  and  interest  to  the  study 
of  value. 


6  BOOK  I.    CH.  I.    §  4. 

different  from  those  of  earlier  times,  because  they  are  the 
result  not  of  custom,  not  of  any  passive  drifting  into  asso- 
ciation with  one's  neighbours,  but  of  free  choice  by  each 
individual  of  that  line  of  conduct  which  after  careful  delibe- 
ration seems  to  him  the  best  suited  for  attaining  his  ends, 
whether  they  are  selfish  or  unselfish. 

Further  the  term  "competition"  not  only  fails  to  go  to 
the  root  of  the  matter,  and  thus  errs  by  defect;  it  also  errs 
by  excess.  For  it  has  gathered  about  .it  evil  savour,  and  has 
come  to  imply  a  certain  selfishness  and  indifference  to  the 
well-being  oT^otHers.  Now  it  is  true  that  there  is  less  delibe- 
rate selfishness  in  early  than  in  modern  forms  of  industry; 
but  there  is  also  less  deliberate  unselfishness.  It  is  the  delibe- 
rateness,  and  not  the  selfishness,  that  is  the  characteristic  of 
the  modern  age. 

Custom  in  a  primitive  society  extends  the  limits  of  the 
M  n  is  n  t  family,  and  prescribes  certain  duties  to  one's 
more  selfish  neighbours  which  fall  into  disuse  in  a  later  civi- 
t  an  e  was,  jj^ation ;  but  it  also  prescribes  an  attitude  of 
hostility  to  strangers.  \  In  a  modern  society  the  obligations  of 
family  kindness  become  Inore  intense,  though  they  are  concen- 
trated on  a  narrower  area;  and  neighbours  are  put  more 
nearly  on  the  same  footing  with  strangers^.  In  ordinary  deal- 
ings with  both  of  them  the  standard  of  fairness  and  honesty 
is  lower  than  in  some  of  the  dealings  of  a  primitive  people 
with  their  neighbours,  but  it  is  much  higher  than  in  their 
dealings  with  strangers.  Thus  it  is  the  ties  of  neighbourhood 
alone  that  have  been  relaxed.  The  ties  of  family  are  in 
many  ways  stronger  than  before;  family  affection  leads  to 
much  more  self-sacrifice  and  devotion  than  it  used  to  do. 
And  again  sympathy  with  those  who  are  strangers  to  us  is  a 
growing  source  of  a  kind  of  deliberate  unselfishness  that  never 
existed  before  the  modem  age.  That  country  which  is  the 
birthplace  of  modern  competition  devotes  a  larger  part  of  its 
income  than  any  other  to  charitable  uses,  and  spent  twenty 


INTRODUCTION.  7 

millions  on  purchasing  the  freedom  of  the  slaves  in  the  West 
Indies.  In  every  age  poets  and  social  reformers  have  tried  to 
stimulate  the  people  of  their  own  time  to  a  nobler  life  by 
enchanting  stories  of  the  virtues  of  the  heroes  of  old.  But 
neither  the  records  of  history  nor  the  contemporary  observa- 
tion of  backward  races,  when  carefully  studied,  give  any 
support  to  the  doctrine  that  man  is  on  the  whole  harder  and 
harsher  than  he  was,  or  that  he  was  ever  more  willing  than 
he  is  now  to  sacrifice  his  own  happiness  for  the  benefit  of 
others  in  cases  where  custom  and  law  have  left  him  free  to 
choose  his  own  course.  Among  races  whose  intellectual  capa- 
city seems  not  to  have  developed  in  any  other  direction,  and 
who  have  none  of  the  originating  power  of  the  modern  busi- 
ness man,  there  will  be  found  many  who  show  an  evil  sagacity 
in  driving  a  hard  bargain  in  a  market  even  with  their  neigh- 
bours. No  traders  are  more  unscrupulous  in  taking  advantage 
of  the  necessities  of  the  unfortunate  than  the  corn-dealers  and 
money-lenders  of  the  East. 

Again,  the  modern  era  has  undoubtedly  given  new  open- 
ings for  dishonesty  in  trade.  The  advance  of  nor  more  dis- 
knowledge  has  discovered  new  ways  oFlmaking  honest, 
things  appear  other  than  they  are,  and  has  rendered  possible 
many  new  forms  of  adulteration.  The  producer  is  now  far 
removed  from  the  ultimate  consumer;  and  his  wrong-doings 
are  not  visited  with  the  prompt  and  sharp  punishment  which 
falls  on  the  head  of  a  person  who,  being  bound  to  live  and  die 
in  his  native  village,  plays  a  dishonest  trick  on  one  of  his 
neighbours.  The  opportunities  for  knavery  are  certainly  more 
numerous  than  they  were ;  but  there  is  no  reason  for  thinking 
that  people  avail  themselves  of  a  larger  proportion  of  such 
opportunities  than  they  used  to  do.  \0n  the  contrary,  modern 
methods  of  trade  imply  habits  of  trustfulness  on  the  one  side 
and  a  power  of  resisting  temptation  to  dishonesty  on  the  other, 
which  do  not  exist  among  a  backward  peopleX  Instances  of 
simple  truth  and  personal  fidelity  are  met  with  under  all  social 


8  BOOK   I.    CH.    I.   §§   4,    5. 

conditions :  but  those  who  have  tried  to  establish  a  business 
of  modern  type  in  a  backward  country  find  that  they  can 
scarcely  ever  depend  on  the  native  population  for  filling  posts 
of  trust.  Adulteration  and  fraud  in  trade  were  rampant  in  the 
middle  ages  to  an  extent  that  is  surprising  when  we  consider 
the  difiiculties  of  wrong  doing  without  detection  at  that  time. 

The  term  "competition"  is  then  not  well  suited  to  describe 
the  special  characteristics  of  industrial  life  in  the  modern  age. 
We  need  a  term  that  does  not  imply  any  moral  qualities, 
whether  good  or  evil,  but  which  indicates  the  undisputed  fact 
that  modern  business  is  characterized  by  more  self-reliant 
habits,  more  forethought,  more  deliberate  and  free  choice. 
There  is  not  any  one  term  adequate  for  this  purpose :    but 

Economic  FREEDOM  OF  INDUSTRY   AND   ENTERPRISE,  Or  mOre 

Freedom.  shortly,  Eco.sOMic  FREEDOM,  points  in  the  right 

direction,  and  may  be  used  in  the  absence  of  a  better. 

Of  course  this  deliberate  and  free  choice  may  lead  to  a  cer- 
tain departure  from  individual  freedom,  when  co-operation  or 
combination  seems  to  offer  the  best  route  to  the  desired  end. 
The  questions  how  far  these  deliberate  forms  of  association  are 
likely  to  destroy  the  freedom  in  which  they  had  their  origin, 
and  how  far  they  are  likely  to  be  conducive  to  the  public  weal, 
will  occupy  a  large  share  of  our  attention  towards  the  end  of 
this  treatise. 

§  5.     "The  word  value"   says   Adam   Smith   "has  two 
different  meanings,  and  sometimes  expresses  the 
utility  of  some  particular  object  and  sometimes 
the  power  of  purchasing  other  goods  which  the  possession  of 
that  object  conveys.     The  one  may  be  called  value  in  use,  the 
other  value  in  exchange."     In  the  place  of  "value  in  use" 
which  is  a  misleading  expression,  we  now  speak  of  "  uijlitv ; " 
while  instead  of  "value  in  exchange"  we  often  say  "exchange- 
value  "  or  simply  J',  value." 
^-v  Th£,„;j:;giiM,e„— that  is,  the  exchange  value — of  one  thing  in 

^    -^  terms  of  another  at  any  place  and  time,  is  the  amount  of  that 


^ 


INTRODUCTION.  9 

Second  thing  which  can  be  got  there  and  then  in  exchange  for 
'the  first.  Thus  the  term  value  is  relative,  and  expresses  the 
/  -relation  between  two  things  at  a  particular  place  and  time. 

Civilized  countries  generally  adopt  gold  or  silver  or  both 
as  money.  Instead  of  expressing  the  values  of  lead  and  tin, 
and  wood,  and  corn  and  other  things  in  terms  of  one  another 
we  express  them  in  terms  of  money  in  the  first  instance ;  and 
call  the  value  of  each  thing  thus  expressed  its  price.  If  we 
know  that  a  ton  of  lead  will  exchange  for  fifteen  sovereigns 
at  any  place  and  time,  while  a  ton  of  tin  will  exchange  for 
ninety  sovereigns,  we  say  that  their  prices  then  and  there  are 
£15  and  .£90  respectively,  and  we  know  that  the  value  of  a 
ton  of  tin  in  terms  of  lead  is  six  tons  then  and  there. 

The  price  of  every  thing  rises  and  falls  from  time  to 
time  and  place  to  place;  and  with  every  such  change  the 
purchasing  power  of  money  changes  so  far  as  that  thing  goes. 
If  the  purchasing  power  of  money  rises  with  regard  to  some 
things  and  at  the  same  time  falls  equally  with  regard  to 
equally  important  things,  its  general  purchasing  power  (or  its 
power  of  purchasing  things  in  general)  has  remained  station- 
ary. It  is  true  that  this  way  of  speaking  is  vague,  because 
we  have  not  considered  how  to  compare  the  importance  of 
different  things.  That  is  a  diflftculty  which  we  shall  have  to 
deal  with  later  on :  but  meanwhile  we  may  accept  the  phrase 
in  the  vague  but  quite  intelligible  usage  that  it  has  in  ordi- 
nary discourse.  Throughout  the  earlier  stages  of  our  work  it 
will  be  best  to  speak  of  the  exchange  value  of  a  thing  at  any 
place  and  time  as  measured  by  its  price,  that  is,  the  amount 
of  money  for  which  it  will  exchange  then  and  there,  and  to 
assume  that  there  is  no  change  in  the  general  purchasing 
power  of  money'. 

1  This  chapter  is  suhstantially  the  same  as  the  first  chapter  of  the  first 
Book  of  my  Principles  of  Political  Economy;  or — to  use  a  mode  of  abbreviation 
that  will  always  be  adopted  hereafter — as  Principles  1. 1.  See  note  at  end  of 
Table  of  Contents. 


CHAPTER  II. 

THE  GROWTH  OF  FREE  INDUSTRY  AND  ENTERPRISE. 

§  1.  The  growth  of  Economic  Freedom  has  been  slow 
Early  civiii-  ^nd  fitful.  Early  civilizations  were  necessarily 
zations.  jj^  warm  climates  because  no  great  advance  in 

culture  can  be  made  except  where  there  is  a  considerable 
Influence  of  surplus  above  the  bare  necessaries  of  life;  and, 
climate.  i^  a  cold  climate  man's   whole  energies  are  ab- 

sorbed in  providing  these  necessaries,  unless  he  is  aided  by 
accumulated  wealth  and  knowledge.  But  a  warm  climate 
lowers  energy  and  in  consequence  the  great  body  of  workers 
in  the  old  civilizations  of  the  East  were  of  a  submissive  and 
unenterprising  character;  and  were  kept  to  their  work  by  the 
discipline  of  the  ruling  castes.  These  ruling  castes  had 
generally  come  at  no  distant  date  from  a  more  bracing  climate, 
either  in  mountainous  regions  or  in  the  distant  North.  They 
devoted  themselves  to  war,  to  political  and  sacerdotal  func- 
tions, and  sometimes  to  arl;  but  they  avoided  manual  work, 
and  left  that  to  serfs  and  slaves.  The  manual  labour  classes 
scarcely  even  conceived  the  idea  of  freedom;  but  looked  to 
custom  as  the  great  protector  against  arbitrary  oppression. 
Influence  of  It  is  true  that  some  customs  were  very  cruel; 
custom.  |3^^  jf  customs  were  merely  cruel  they  speedily 

destroyed  the  lower  classes  and  therefore  also  the  upper 
classes  who  rested  on  them.  And  in  consequence  those  races 
which  have  had  a  long  history  are  also  those  whose  customs 
have  on  the  whole  been  kindly,  and  the  good  largely  pre- 
dominates over  the  evil  in  the  records  of  the  influence  of 
custom  on  moral  as  well  as  phj^sical  well-being. 


GROWTH   OF   ECONOMIC    FREEDOM.  11 

Greek  civilization  was  beautiful,  and  in  many  respf^cts 
modern.     But  the  Greeks,  as  well  as  the  Romans 

'  .  Ancient 

who  learnt  much  from  them,  regarded  industry    Greece  and 
as  belonging  especially  to  slaves,  and  they  did       °'"^* 
not  anticipate  the  ethicQze<^oiiomic  problems  of  modern  life. 

§  2.     The  Teutonic   races    which   overthrew   the  Koman 
Empire  were  slow  to  adopt  the  culture  of  the    The  Middle 
people  whom  they  conquered;  and  the  Western    Ages, 
world,  under  their  rule,  seemed  almost  to  have  fallen  back 
into  barbarism.     But  the  ruling  classes  respected  hard  work, 
and  the  working  classes  maintained  freedom  and  independence 
of  character.     Meanwhile  the  Christian  religion 
was  proclaiming  the  nobility  of  all  honest  labour 
and  the  dignity  of  man  as  man.     By   slow   degrees   power 
passed  into  the  hands  of  the  industrial    classes;    and   their 
well-being  began  to  appear  to  the  ruling  classes   as  an  im- 
portant end  in  itself,  and  not  merely  as  a  necessary  condition 
of  political  and  military  strength. 

A  view  of  society  which  was  more  modern  in  many  respects 
was  accepted  by  the  groups  of  handicraftsmen  The  free 
who  took  the  chief  part  in  founding  many  of  the  towns, 
mediaeval  "free"  cities.  And  though,  as  time  went  on,  class 
distinctions  showed  themselves  even  here,  yet  the  great  body 
of  the  inhabitants  frequently  had  the  full  rights  of  citizens, 
deciding  for  themselves  the  foreign  and  domestic  policy  of 
their  city,  and  at  the  same  time  working  with  their  hands  and 
taking  pride  in  their  work.  They  organized  themselves  into 
^Gilds,  thus  increasing  their  cohesion  and  educating  them- 
selves in  self-government;  and  though  the  Gilds  gradually 
became  exclusive,  and  their  trade-regulations  ultimately  re- 
tarded progress,  yet  they  did  excellent  work  before  this 
deadening  influence  had  shown  itself. 

The  citizens  gained  culture  without  losing  energy;  without 
neglecting  their  business,  they  learnt  to  take  an  intelligent 
interest  in  many  things  besides  their  business.     They  led  the 


r 


5^ 


12  BOOK  I.  CH.  ir.  §§  2,  3. 

way  in  the  fine  arts,  and  they  were  not  backward  in  those  of 
war.  They  took  pride  in  magnificent  expenditure  for  public 
purposes;  and  they  took  equal  pride  in  a  careful  husbanding 
of  the  public  resources,  in  clear  and  clean  State  budgets,  and 
in  systems  of  taxes  levied  equitably  and  based  on  sound 
business  principles.  Thus  they  led  the  way  towards  modern 
industrial  civilization;  land  if  they  had  gone  on  their  course 
undisturbed,  and  retained  their  first  love  of  liberty  and 
social  equality,  they  would  probably  long  ago  have  worked 
out  the  solutions  of  many  social  and  economic  problems 
which  we  are  only  now  beginning  to  face.  But  after  being 
long  troubled  by  tumults  and  war,  they  at  last  succumbed 
to  the  growing  power  of  the  countries  by  which  they 
were  surrounded.  For  meanwhile  the  forces  of  feudalism 
had  grown  in  strength  and  had  at  last  been  merged  in 
the  great  monarchies,  especially  those  of  Spain,  Austria  and 
/France;  and  they  gradually  wore  out  or  destroyed  the  free 
j  cities,  whose  material  strength  rested  on  a  much  narrower 
basis. 

§  3.     But  the  hopes  of  progress  were  again  raised  by  the 
,      -  invention  of  Printing,  the  Revival  of  Learninor, 

-Jew  lorces  ,,^_        o'  ,^.,^.,  o' 

/promoting  the  Reformation,  and  the  discovery  of  the  New 
World.  The  countries  which  took  the  lead  in 
the  new  maritime  adventure  were  those  of  the  Spanish 
Peninsula.  It  seemed  for  a  time  as  though  the  leadership 
of  the  world  having  settled  first  in  the  most  easterly  penin- 
^i-    «*  J-  s^l^  ^^  *he  Mediterranean,  and  thence  moved  to 

The  Mediter-        i  .  i  ,  . 

ranean  and  the  the  middle  peninsula,  would  settle  again  in  that 
Atlantic.  westerly  peninsula  which  belonged  both  to  the 

Mediterranean  and  the  Atlantic.  \But  the  power  of  industry 
had  by  this  time  become  sufficient  to  sustain  wealth  and 
civilization  in  a  northern  climate.  And  the  Spanish  and 
Portuguese  could  not  hold  their  own  for  long  against  the 
more  sustained  energy  and  the  more  generous  spirit  of  the 
northern  people;  the  colonists  of  England,  Holland,  and  even 


GROWTH    OF   ECONOMIC   FREEDOM.  13 

France  demanded  and  obtained  far  more  freedom  than  those 
of  Spain  and  Portugal. 

The  early  history  of  the  people  of  Holland  is  indeed  a 
brilliant  romance/.^  Founding  themselves  on  fish- 
ing and  weaving,    they  built  up  a  noble  fabric 
of   Art    and    Literature,    of    Science^  and  Government.     But 
their  natural  resources  were  small,  and  they  were  not  defended 
by  the  sea  from  the  great  armies  of  the  Continent  as  England 
was.     After  bravely  maintaining  a  long  but  unequal  struggle 
Holland  sank  into  the  second  rank  among  nations;  and  the 
struggle  for  the   Empire  of  the  New  World,   in  which  the 
Spanish  Peninsula  had  at  first  taken  a  great  part,  was  left  to 
be  fought  out  between  France   and  England.     In  ITGOjJie    7 
contest    was    decided    in    favour  of   England,  and  from  that 
time  onward  the  leadership  of  the  world  in  trade  and  industry 
lay  chiefly  with  England  and  her  colonies'. 

1  This  chapter  corresponds  to,  but  is  throughout  much  abridged  from 
Princijileti  1.  ii. 


CHAPTER   III. 

THE   GROWTH   OF   FREE   INDUSTRY   AND    ENTERPRISE, 
CONTINUED. 

§  1.  England's  geographical  position  caused  her  to  be  peo- 
The  character  pled  by  the  strongest  members  of  the  strongest 
men.  races  of  northern  Europe;  a  process  of  natural 

selection  brought  to  her  shores  those  members  t)f  each  succes- 
sive migratory  wave  who  were  most  daring  and  self-reliant. 
Her  climate  is  better  adapted  to  sustain  energy  than  any 
other  in  the  northern  hemisphere.  She  is  divided  by  no  high 
hills,  and  no  part  of  her  territory  is  more  than  twenty  miles 
from  navigable  water,  and  thus  there  was  no  material  hin- 
drance to  freedom  of  intercourse  between  her  different  parts ; 
while  the  strength  and  wise  policy  of  the  Norman  and  Plan- 
tagenet  kings  prevented  artificial  barriers  from  being  raised  by 
local  magnates. 

As  the  part  which  Rome  played  in  history  is  chiefly  due 
to  her  having  combined  the  military  strength  of  a  great  empire 
with  the  enterprise  and  fixedness  of  purpose  of  an  oligarchy 
residing  in  one  city,  so  England  owes  her  greatness  to  her 
combining,  as  Holland  had  done  on  a  smaller  scale  before, 
much  of  the  free  temper  of  the  mediaeval  city  with  the  strength 
and  broad  basis  of  a  nation.  The  towns  of  England  had  been 
less  distinguished  than  those  of  other  lands ;  but  she  assimi- 
lated them  more  easily  than  any  other  country  did,  and  so 
gained  in  the  long  run  most  from  them. 

The  ciistom  of  primogeniture  inclined  the  younger  sons 
of  noble  families  to  seek  their  own  fortunes ;  and,  having  no 
special  caste  privileges,  they  mixed  readily  with  the  common 


GROWTH  OF  ECONOMIC  FREEDOM.         15 

people.  This  fusion  of  different  ranks  tended  to  make  poli- 
tics business-like ;  while  it  warmed  the  veins  of  business  ad- 
venture with  the  generous  daring  and  romantic  aspirations 
of  noble  blood.  Resolute  on  the  one  hand  in  resistance  to 
tyranny,  and  on  the  other  in  submission  to  authority  when 
it  is  justified  by  their  reason,  the  English  have  made  many 
revolutions ;  but  none  without  a  definite  purpose.  While 
reforming  the  constitution  they  have  abided  by  the  law  :  they 
alone,  unless  we  except  the  Dutch,  have  known  how  to  com- 
bine order  and  freedom ;  they  alone  have  united  a  thorough 
reverence  for  the  past  with  the  power  of  living  for  the  future 
rather  than  in  the  past.  But  the  strength  of  character  which 
in  later  times  made  England  the  leader  of  manufacturing  pro- 
gress, showed  itself  at  first  chiefly  in  ^oljtics,  in  war,  and  in 
agriculture. 

The  English  yeoman  archer  was  the  forerunner  of  the 
English  artisan.  He  had  the  same  pride  in  the  superiority 
of  his  food  and  his  physique  over  those  of  his  Continental 
rivals ;  he  had  the  same  indomitable  perseverance  in  acquiring 
perfect  command  over  the  use  of  his  hands,  the  same  free  in- 
dependence and  the  same  power  of  self-control  and  of  rising 
to  emergencies ;  the  same  habit  of  indulging  his  humours 
when  the  occasion  was  fit,  but,  when  a  crisis  arose,  of  preserv- 
ing discipline  even  in  the  face  of  hardship  and  misfortune. 

But  the  industrial  faculties  of  Englishmen  remained  latent 
for  a  long  time.  They  had  not  inherited  much  acquaintance 
with  nor  much  care  for  the  comforts  and  luxuries  of  civiliza- 
tion. In  manufactures  of  all  kinds  they  lagged  behind  the 
Latin  countries,  Italy,  France  and  Spain,  as  well  as  the  free 
cities  of  Northern  Europe.  Gradually  the  wealthier  classes 
got  some  taste  for  imported  luxuries,  and  England's  trade 
slowly  increased. 

Whilst  still  an  agricultural  nation  the  English  gave  indica- 
tions of  their  modern  faculty  for  organized  action.  Even  in 
the  middle  ages  there  were  signs  of  the  coming  system  of 


16  BOOK  I.    CH.  III.  §§  l;2. 

large  farms  cultivated  by  farmers,  who  rent  the  land  from  its 
owners  and  employ  hired  labourers  at  their  own  risk.  And 
this  agricultural  system  prepared  the  way  for  the  so-called 
capitalistic  forms  of  modern  manufacture,  in  which  the  em- 
ployer, often  working  largely  with  borrowed  capital,  under- 
takes at  his  own  risk  the  employment  of  a  great  number  of 
hired  workers. 

§  2.  But  it  was  not  till  after  the  Reformation  that  Eng- 
influenee  of  land's  industrial  character  showed  itself  fully. 
ti'on^on^°Slg-  The  natural  gravity  and  intrepidity  of  the  stern 
land.  races  that  had  settled  on  the  shores  of  England 

inclined  them  to  embrace  the  doctrines  of  the  Reformation; 
and  these  reacted  on  their  character,  making  it  deeper  and 
giving  a  serious  and  almost  sombre  tone  to  their  industry. 
It  made  her  people  care  more  for  the  solid  and  substantial 
comforts,  and  less  for  the  festivities  and  the  luxuries  on  which 
other  nations  spent  a  great  part  of  their  surplus  income. 

This  influence  was  strengthened  by  the  fact  that  many 
of  those  who  had  adopted  the  new  doctrines  in  other  countries 
sought  on  her  shores  a  safe  asylum  from  religious  persecution. 
By  a  sort  of  natural  selection,  those  of  the  French  and  Flem- 
ings, and  others  whose  character  was  most  akin  to  the  English, 
and  who  had  been  led  by  that  character  to  sturdy  thorough- 
ness of  work  in  the  manufacturing  arts,  came  to  mingle  with 
them,  and  to  teach  them  those  arts  for  which  their  character 
had  all  along  fitted  them. 

These  were  the  conditions  under  which  the  modern  in- 
dustrial life  of  England  was  developed :  the  desire  for  material 
comforts  tends  towards  a  ceaseless  straining  to  extract  from 
every  week  the  greatest  amount  of  work  that  can  be  got  out 
of  it.  The  firm  resolution  to  submit  every  action  to  the 
deliberate  judgment  of  the  reason  tends  to  make  every  one 
constantly  ask  himself  whether  he  could  not  improve  his 
position  by  changing  his  business,  or  by  changing  his  method 
of   doing   it.      And,    lastly,    complete   political    freedom   and 


GROWTH    OF   ECONOMIC   FREEDOM.  17 

security  enable  everyone  to  adjust  his  conduct  as  he  has  de- 
cided that  it  is  his  interest  to  do,  and  fearlessly  to  commit 
his  person  and  his  property  to  new  and  distant  under- 
takings. 

In  short,  the  same  causes  which  have  enabled  England 
and  her  colonies  to  set  the  tone  of  modern  politics,  have 
made  them  also  set  the  tone  of  modern  business.  The  same 
qualities  which  gave  them  political  freedom  gave  them  "also 
free  enterprise  in  industry  and  commerce. 

§  3.  Freedom  of  industry  and  enterprise,  so  far  as  its 
action  reaches,  tends  to  cause  everyone  to  seek  Beginnings  of 
that  employment  of  his  labour  and  capital  in  ^fb^^^nggs""^ 
which  he  can  turn  them  to  best  advantage,  management, 
this  again  leads  him  to  try  to  obtain  a  special  skill  and 
facility  in  some  particular  task,  by  which  he  may  earn  the 
means  of  purchasing  what  he  himself  wants.  And  hence 
results  a  complex  industrial  organization,  with  much  subtle 
division  of  labour. 

The  most  important  form  of  this  divis^'^^^  ^f  ,1g.]b<;)ur  for  our 
present  purpose, — the  form  which  is  most  characteristic  of  the 
modern  world  generally,  and  of  the  English  race  in  particular 
— is  that  by  which  the  work  within  each  trade  is  so  divided 
up  that  the  planning  and  arrangement  of  the  business,  its 
management  and  its  risks,  are  borne  by  one  set  of  people, 
while  the  manual  work  required  for  it  is  done  by  hired  labour. 
This  may  be  merely  a  passing  phase  in  man's  development;  it 
may  be  swept  away  by  the  further  growth  of  that  free  enter- 
prise which  has  called  it  into  existence.  But  for  the  present 
it  stands  out  for  good  and  for  evil  as  the  chief  fact  in  the  form 
of  modern  civilization,  the  kernel  of  the  modern  economic 
problem. 

The  power  of  large  capitalist  manufacturers  is  of  early 
origin,  but  it  received  a  great  impetus  from  the  discovery  of 
the  New  World  and  the  opening  up  of  large  markets  across 
the  sea  for  the  simple  manufactures  of  the  Old  World.     And 

M.  2 


18  BOOK  I.   CH.  III.   §§  8 — 5. 

this  demand  has  exercised  a  constantly  increasing  influence 
over  the  economic  conditions  of  England. 

§  4.     In  the  latter  half  of  the  eighteenth  century  a  series 
of    ffreat    mechanical    inventions    and    a    wide 

Rise  of  the  °    .  p   t^       ^        ^,  •         •         a 

factory  extension  of  iLn^lands  empire  m  America  and 

system.  Asia  combined  to  make  the  changes  in  the  con- 

ditions of  her  industry  move  very  fast.  It  is  true  that 
the  first  effect  of  this  change  was  not  so  much  to  increase 
the  size  of  factories,  as  to  develop  the  system  of  con- 
tracting, in  which  a  comparatively  few  wealthy  capitalists 
distributed  their  orders  to  a  great  number  of  small  masters 
scattered  over  the  country  wherever  there  was  water-power 
to  be  had;  they  themselves  undertaking  the  risks  of  buying 
the  raw  material  and  selling  the  manufactured  goods,  i  It  was 
only  when  steam-power  began  to  displace  water-power  that 
the  size  of  the  factories  increased  rapidly  \  '  But,  both  in  its 
earlier  and  its  later  forms,  the  new  movement  tended  to  release 
the  bonds  that  had  bound  nearly  everyone  to  live  in  the 
parish  in  which  he  was  born;  and  it  developed  free  markets 

1  The  quarter  of  a  century  beginning  with  1760  saw  improvements  follow 
one  another  in  manufacture  even  more  rapidly  than  in  agriculture.  During 
that  period  the  transport  of  heavy  goods  was  cheapened  by  Brindley's  canals, 
the  production  of  power  by  Watt's  steam-engine,  and  that  of  iron  by  Cort's 
processes  of  puddling  and  rolling,  and  by  Koebuck's  method  of  smelting  it  by 
coal  in  lieu  of  the  charcoal  that  had  now  become  scarce ;  Hargreaves,  Cromp- 
ton,  Arkwright,  Cartwright  and  others  invented,  or  at  least  made  economi- 
cally serviceable,  the  spinning  jenny,  the  mule,  the  carding  machine,  and  the 
power-loom;  Wedgwood  gave  a  great  impetus  to  the  pottery  trade  that  was 
already  growing  rapidly;  and  there  were  important  inventions  in  printing 
from  cylinders,  bleaching  by  chemical  agents,  and  in  other  processes.  A 
cotton  factory  was  for  the  first  time  driven  directly  by  steam-power  in  1785, 
the  last  year  of  the  period.  The  beginning  of  the  nineteenth  century  saw 
steam-ships  and  steam  printing-presses,  and  the  use  of  gas  for  lighting  towns. 
Railway  locomotion,  telegraphy  and  photography  came  a  little  later.  Our 
own  age  has  seen  numberless  improvements  and  new  economies  in  production, 
prominent  among  which  are  those  relating  to  the  production  of  steel,  the  tele- 
phone, the  electric  light,  and  the  gas-engine;  and  the  social  changes  arising 
from  material  progress  are  in  some  respects  more  rapid  now  than  ever.  But 
the  groundwork  of  the  changes  that  have  happened  since  1785  was  chiefly  laid 
in  the  inventions  of  the  years  1700  to  1785. 


I 


GROWTH  OF  ECONOMIC  FREEDOM.         19 

for  labour,  which  invited  people  to  resort  to  them,  and 
to  take  their  chance  of  finding  employment.  Up  to  the 
eighteenth  century  manufacturing  labour  had  been  hired,  as 
it  were,  always  retail;  in  that  century  it  began  to  be  hired 
wholesale.  Up  to  that  time  its  price  had  been  in  the  main 
either  nominally  fixed  by  custom,  or  determined  by  the  in- 
cidents of  bargaining  in  very  small  markets :  the  bargaining 
had  been  sometimes  for  the  hire  of  labour,  sometimes  for  the 
sale  of  its  products,  the  workman  having  himself  undertaken 
the  risks  of  production.  But  since  then  its  price  has  more 
and  more  been  determined  by  the  circumstances  of  supply 
and  demand  over  a  large  area — a  town,  a  country,  or  the 
whole  world. 

/The  new  organization  of  industry  added  vastly  to  the 
efiiciency  of  production^ but  it  brought  with  it  great  evils. 
Which  of  these  evils  was  unavoidable  we  cannot  The  new 
tell.  For  just  when  the  change  was  moving  I'f^ZltZ 
most  quickly,  England  was  stricken  by  a  com-  by  great  evils, 
bination  of  calamities  almost  unparalleled  in  history.  They 
were  the  cause  of  a  great  part — it  is  impossible  to  say  of  how 
great  a  part — of  the  suiferings  that  are  commonly  ascribed  to 
the  sudden  outbreak  of  unrestrained  competition.  The  loss  of 
her  great  colonies  was  quickly  followed  by  the  great  French 
war,  which  cost  her  more  than  the  total  value  of  the  accu 
mulated  wealth  she  had  at  its  commencement.  An  un 
precedented  series  of  bad  harvests  made  bread  fearfully  dear.' 
And  worse  than  all,  a  method  of  administration  of  the  poor 
law  was  adopted  which  undermined  the  independence  and 
vigour  of  the  people. 

The  first  part  of  this  century  therefore  saw  free  enterprise 
establishing  itself  in  England  under  unfavourable  circum- 
stances, its  evils  being  intensified,  and  its  benefits  being 
lessened  by  external  misfortunes. 

§  5.  The  old  trade  customs  and  gild  regulations  were 
unsuitable  to  the  new  industry.     In  some  places  they  were 

2—2 


20  BOOK  I.   CH.  III.   §  5. 

abandoned  by  common  consent:  in  others  they  were  suc- 
Attempts  to  cessfuUy  upheld  for  a  time.  But  it  was  a  fatal 
maintain  old  success;  for  the  new  industry,  incapable  of  flourish- 
regu  a  ions.  .^^  under  the  old  bonds,  left  those  places  for 
others  where  it  could  be  more  free.  Then  the  workers 
,  turned  to  Government  for  the  enforcement  of  old  laws  of 
\  Parliament  prescribing  the  way  in  which  the  trade  should  be 
^carried  on,  and  even  for  the  revival  of  the  regulation  of  prices 
^and  wages  by  justices  of  the  peace. 

These  efforts  could  not  but  fail.  The  old  regulations  had 
been  the  expression  of  the  social,  moral  and  economic  ideas 
of  the  time;  they  had  been  felt  out  rather  than  thought  out; 
they  were  the  almost  instinctive  result  of  the  experience  of 
generations  of  men  who  had  lived  and  died  under  almost 
unchanged  economic  conditions.  In  the  new  age  changes 
came  so  rapidly  that  there  was  no  time  for  this.  Each  man 
had  to  do  what  was  right  in  his  own  eyes,  with  but  little 
guidance  from  the  experience  of  past  times;  those  who  en- 
deavoured to  cling  to  old  traditions  were  quickly  supplanted. 

\  The  new  race  of  manufacturers  consisted  chiefly  of  those 
who  had  made  their  own  fortunes,  strong,  ready,  enterprising 
men:  who,  looking  at  the  success  obtained  by  their  own 
energies,  were  apt  to  assume  that  the  poor  and  the  weak 
were  to  be  blamed  rather  than  to  be  pitied  for  their  mis- 
fortunes. \  Impressed  with  the  folly  of  those  who  tried  to 
bolster  up  economic  arrangements  which  the  stream  of  pro- 
gress had  undermined,  they  were  apt  to  think  that  nothing 
more  was  wanted  than  to  make  competition  perfectly  free 
and  let  the  strongest  have  their  way.  They  glorified^  indi- 
vidualism, and  were  in  no  hurry  to  find  a  modern  substitute 
for  the  social  and  industrial  bonds  which  had  kept  men 
together  in  earlier  times. 

Meanwhile  misfortune  had  reduced  the  total  net  income  of 
the  people  of  England.  In  1820  a  tenth  of  it  was  absorbed 
in  paying  the  mere  interest  on  the  National  Debt.     The  goods 


GROWTH   OF   ECONOMIC   FREEDOM.  21 

that  were  cheapened  by  the  new  inventions  were  chiefly  manu- 
factured commodities  of  which  the  working  man  influence  of 
was  but  a  small  consumer :  |but  the  Corn-Laws  J^J^'^  anTdear- 
prevented  him  from  getting  cheaply  the  bread  nessoffood. 
on  which  he  often  spent  three-fourths  of  his  little  wagesj) 
He  had  to  sell  his  labour  in  a  market  in  which  the  forces 
of  supply  and  demand  would  have  given  him  a  poor  pittance 
even  if  they  had  worked  freely.  But  he  had  not  the  full 
advantage  of  economic  freedom ;  he  had  no  efficient  union 
with  his  fellows ;  he  had  neither  the  knowledge  of  the  market, 
nor  the  power  of  holding  out  for  a  reserve  price,  which  the 
seller  of  commodities  has,  and  he  was  urged  on  to  work  and  to 
let  his  family  work  during  long  hours  and  under  unhealthy 
conditions.  This  reacted  on  the  efficiency  of  the  working 
population,  and  therefore  on  the  net  value  of  their  work,  and 
therefore  it  kept  down  their  wages.  ■  The  employment  of  chil- 
dren during  excessive  hours  began  in^he  seventeenth  century, 
and  remained  grievous  till  after  the  repeal  of  the  corn  laws.^ 
But  after  the  workmen  had  recognized  the  folly  of  attempt- 
ing to  revive  the  old  rules  regulating  industry,  there  was 
no  longer  any  wish  to  curtail  the  freedom  of  enterprise.  The 
sufferings  of  the  English  people  at  their  worst  were  never 
comparable  to  those  which  had  been  caused  by  the  want  of 
freedom  in  France  before  the  Revolution;  and  it  The  new 
was  argued  that,  had  it  not  been  for  the  strength  E^n^iand^from 
which  England  derived  from  her  new  industries,^  French  armies, 
she  would  probably  have  succumbed ,  to  a  foreign  military 
despotism,  as  the  free  cities  had  done  before  her.  Small  as  her 
population  was  she  at  some  times  bore  almost  alone  the  burden 
of  war  against  a  conqueror  in  control  of  nearly  all  the  re- 
sources of  the  Continent ;  and  at  other  times  subsidized  larger, 
but  poorer  countries  in  the  struggle  against  him.  Rightly  or 
wrongly,  it  was  thought  at  the  time  that  Europe  might  have 
fallen  permanently  under  the  dominion  of  France,  as  she  had 
fallen  in  an  earlier  age  under  that  of  Rome,  had  not  the 


22  BOOK  I.  CH.  III.  §§  5,  6. 

free  energy  of  English  industries  supplied  the  sinews  of  war 
against  the  common  foe.  Little  was  therefore  heard  in  com- 
plaint against  the  excess  of  free  enterprise,  but  much  against 
that  limitation  of  it  which  prevented  Englishmen  from  obtain- 
ing food  from  abroad  in  return  for  the  manufactures  which 
they  could  now  so  easily  produce. 

And  even  trades-unions,  which  were  then  beginning  that 
brilliant  though  chequered  career  which  has  been  more  full 
of  interest  and  instruction  than  almost  anything  else  in 
,  English  history,  passed  into  the  phase  of  seeking  little  from 
authority  except  to  be  left  alone.\  They  had  learnt  by  bitter 
experience  the  folly  of  attempting  W  enforce  the  old  rules  by 
which  Government  had  directed  the  course  of  industry;  and 
they  had  as  yet  got  no  far-reaching  views  as  to  the  regula- 
tion of  trade  by  their  own  action :  their  chief  anxiety  was  to 
increase  their  own  economic  freedom  by  the  removal  of  the 
laws  against  combinations  of  workmen.V 

§  6.  It  has  been  left  for  our  own  generation  to  perceive 
Dangers  of  a  all  the  evils  which  arose  from  this  sudden  in- 
cr^asTof  free-  urease  of  economic  freedom.  Now  first  are  we 
dom.  getting  to  understand  the  extent  to  which  the 

capitalist  employer,  untrained  to  his  new  duties,  was  tempted 
to  subordinate  the  wellbeing  of  his  workpeople  to  his  own 
desire  for  gain;   now  first  are  we  learning  the  importance 

tof  insisting  that  the  rich  have  duties  as  well  as  rights  in 
their  individual  and  in  their  collective  capacity;  now  first 
is  the  economic  problem  of  the  new  age  showing  itself  to 
us  as  it  really  is.  This  is  partly  due  to  a  wider  knowledge 
and  a  growing  earnestness.  But  however  wise  and  virtuous 
our  grandfathers  had  been,  they  could  not  have  seen  things 
as  we  do ;  for  they  were  hurried  along  by  urgent  necessities 
and  terrible  disasters. 

But  we  must  judge  ourselves  by  a  severer  standard.  For 
we  are  not  now  struggling  for  national  existence;  and  our 
resources  have  not  been  exhausted  by  great  wars  :  on  the  con- 


r 


GROWTH    OF    ECONOMIC    FREEDOM.  23 

trary  our  powers  of  production  have  been  immensely  increased  ; 
and,  what  is  at  least  as  important,  the  repeal  of  ^j^g  nation 
the  Corn  Laws  and  the  growth  of  steam  com-  is  richer,  and 

5*  .  need  not  sacri- 

munication  have  enabled  a  largely  increased  fice  everything 
population  to  obtain  sufficient  supplies  of  food  on  ^°  production, 
easy  terms.  The  average  money  income  of  the  people  has 
more  than  doubled;  while  the  price  of  almost  all  important 
commodities  except  animal  food  and  house-room  has  fallen  by 
one-half  or  even  further.  It  is  true  that  even  now,  if  wealth 
were  distributed  equally,  the  total  production  of  the  country 
would  only  suffice  to  provide  necessaries  and  the  more  urgent 
comforts  for  the  people*,  and  that  as  things  are,  many  have 
barely  the  necessaries  of  life.  But  the  nation  has  grown  in 
wealth,  in  health,  in  education  and  in  morality ;  and  we  are  no 
longer  compelled  to  subordinate  almost  every  other  consi- 
deration to  the  need  of  increasing  the  total  produce  of 
industry. 

In  particular  during  the  present  generation  this  increased 
prosperity  has  made  us  rich  and  strong  enough  to  impose 
new  restraints  on  free  enterprise;  some  temporary  material 
loss  being  submitted  to  for  the  sake  of  a  higher  and  greater 
ultimate  gain.  But  these  new  restraints  are  different  from 
the  old.  They  are  imposed  not  as  a  means  of  class  domi- 
nation ;  but  with  the  purpose  of  defending  the  weak,  and 
especially  children  and  the  mothers  of  children,  in  matters 
in  which  they  are  not  able  to  use  the  forces  of  competition 
in  their  own  defence.  The  aim  is  to  devise,  deliberately  and 
promptly,  remedies  adapted  to  the  quickly  changing  circum- 
stances of  modern  industry ;    and  thus  to  obtain  the  good. 


1  The  average  income  per  head  in  the  United  Kingdom  which  was  about 
£15  in  1820  is  about  £33  now;  i.e.  it  has  risen  from  about  £75  to  £165  per 
family  of  five.  There  are  not  a  few  artisans'  famiHes,  the  total  earnings  of 
which  exceed  £165,  so  that  they  would  lose  by  an  equal  distribution  of  wealth : 
but  even  they  have  not  more  than  is  required  to  support  a  healthy  and  many-  j 
sided  life. 


1 


24  BOOK  I.   CH.  III.   §  6. 

without  the  evil,  of  the  old  defence  of  the  weak  that  in  other 
ages  was  gradually  evolved  by  custom.  And  by  the  aid  of  the 
The  influence  telegraph  and  the  printing-press,  of  representa- 
of  the  tele-  tive  government  and  trade  associations,  it  is 
printing-  possiblo  for  the  people  to  think  out  for  them- 

I    press.  selves  the  solution  of  their  own  problems.     The 

\  growth  of  knowledge  and  self-reliance  has  given  them 
that  true  self-controlling  freedom,  which  enables  them  to 
impose  of  their  own  free  will  restraints  on  their  own 
actions ;  and  the  problems  of  collective  production,  collective 
ownership  and  collective  consumption  are  entering  on  a  new 
^  phase. 

Projects  for  great  and  sudden  changes  are  now,  as  ever, 
foredoomed  to  fail,  and  to  cause  reaction.  We  are  still 
unable  to  move  safely,  if  we  move  so  fast  that  our  new  plans 
of  life  altogether  outrun  our  instincts.  It  is  true  that  human 
nature  can  be  modified;  new  ideals,  new  opportunities  and 
new  methods  of  action  may,  as  history  shows,  alter  it  very 
much  even  in  a  few  generations.  This  change  in  human 
nature  has  perhaps  never  covered  so  wide  an  area  and  moved 
so  fast  as  in  the  present  generation.  But  still  it  is  a 
growth,  and  therefore  gradual;  and  changes  of  our  social 
organization  must  wait  on  it,  and  therefore  they  must  be 
gradual  too. 

But  though  they  wait  on  it,  they  may  always  keep  a  little 
Movement  ^^  advance  of  it,  promoting  the  growth  of  our 
towards  higher   social  nature  by  giving  it  always    some 

forms  of  col-  new  and  higher  work  to  do,  some  practical  ideal 
lectivism.  towards  which  to  strive.  Thus  gradually  we  may 
attain  to  an  order  of  social  life,  in  which  the  common  good 
overrules  individual  caprice,  even  more  than  it  did  in  the 
early  ages  before  the  sway  of  individualism  had  begun.  But 
unselfishness  then  will  be  the  offspring  of  deliberate  will, 
though  aided  by  instinct  individual  freedom  then  will  develop 
itself  in  collective   freedom; — a  happy  contrast  to  the   old 


GROWTH    OF   ECONOMIC   FREEDOM.  25 

order  of  life,  in  which  individual  slavery  to  custom  caused 
collective  slavery  and  stagnation,  broken  only  by  the  caprice 
of  despotism  or  the  caprice  of  revolution^. 

We  have  been  looking  at  this  movement  from  the  English 
point  of  view.  But  other  nations  are  taking  their  share  in  it. 
America  faces  new  practical  difficulties  with  such  intrepidity 
and  directness  that  she  is  already  contesting  with  England  the 
leadership  in  economic  affairs ;  she  supplies  many  of  the  most 
instructive  instances  of  the  latest  economic  tendencies  of  the 
age,  such  as  the  growing  democracy  of  trade  and  industry,  and 
the  development  of  speculation  and  trade  combination  in  every 
form,  and  she  will  probably  before  long  take  the  chief  part  in 
pioneering  the  way  for  the  rest  of  the  world.  Nor  is  Australia 
showing  less  signs  of  vigour  than  her  elder  sister ;  she  has  in- 
deed some  advantage  over  the  United  States  in  the  greater 
homogeneity  of  her  people. 

On  the  Continent  the  power  of  obtaining  important  results 
by  free  association  is  less  than  in  English  speaking  countries ; 
and  in  consequence  there  is  less  resource  and  less  thoroughness 
in  dealing  with  industrial  problems.  But  their  treatment  is 
not  quite  the  same  in  any  two  nations :  and  there  is  something 
characteristic  and  instructive  in  the  methods  adopted  by  each 
of  them ;  particularly  in  relation  to  the  sphere  of  governmental 
action.  In  this  matter  Germany  is  taking  the  lead.  It  has 
been  a  great  gain  to  her  that  her  manufacturing  industries 
developed  later  than  those  of  England ;  and  she  has  been  able 
to  profit  by  England's  experience  and  to  avoid  many  of  her 
mistakes. 

1  The  earlier  half  of  this  Chapter  is  much  abridged  from   Principles 
I.  III.;  the  second  half  is  reproduced  with  but  little  change. 


CHAPTER  IV. 

THE   GROWTH   OF   ECONOMIC   SCIENCE. 

§  1.  Having  watched  some  of  the  changes  which  have 
been  wrought  in  economic  conditions  by  the  growth  of  free 
enterprise,  we  may  next  glance  at  the  parallel  changes  in  the 
science  which  studies  those  conditions. 

Modern  economics  had  its  origin  in  common  with  other 
^  .  .     ,  sciences  towards  the  end  of   the  Middle  Ases, 

Origin  of  mo-  .  i  .    ri  '•    ""^ 

dernecono-  and  at  first  it  was  chiefly  concerned  with  the 
^^^^-  monetary  problems  which  were  at  that  time  of 

paramount  interest,  as  a  result  of  the  discovery  of  the  mines 
of  the  New^  World  and  of  other  causes. 

In  all  ages,  but  especially  in  the  early  Middle  Ages,  states- 
men and  merchants  had  busied  themselves  with  endeavours 
to  enrich  the  State  by  regulating  trade.  One  chief  object  of 
their  concern  had  been  the  supply  of  the  precious  metals, 
which  they  thought  the  best  indication  if  not  the  chief  cause 
of  material  prosperity,  whether  of  the  individual  or  the  nation. 
But  the  voyages  of  Vasco  de  Gama  and  Columbus  raised 
commercial  questions  from  a  secondary  to  a  dominating  posi- 
tion among  the  nations  of  Western  Europe.  Theories  with 
regard  to  the  importance  of  the  precious  metals  and  the  best 
means  of  obtaining  supplies  of  them,  became  the  arbiters  of 
public  policy :  they  dictated  peace  and  war,  they  determined 
alliances  that  issued  in  the  rise  and  fall  of  nations  and  they 
governed  the  migration  of  peoples  over  the  face  of  the  globe. 

Regulations  as  to  trade  in  the  precious  metals  were  but 
one   group  of   a  vast  body  of  ordinances,  which  undertook, 


GROWTH   OF    ECONOMIC   SCIENCE.  27 

with  varying  degrees  of  minuteness  and  severity,  to  arrange 
for  each  individual  what  he  should  produce  and    ^, 

^  The  early 

how  he  should  produce  it,  what  he  should  earn  regulation  of 
and  how  he  should  spend  his  earnings.  The  ^^^  ^' 
natural  adhesiveness  of  the  Teutons  had  given  custom  an 
exceptional  strength  in  the  early  Middle  Ages.  And  this 
strength  told  on  the  side  of  trade  gilds,  of  local  authorities 
and  of  national  Governments  when  they  set  themselves  to 
cope  with  the  restless  tendency  to  change  that  sprang  directly 
or  indirectly  from  the  trade  with  the  New  World.  In  France 
this  Teutonic  bias  was  directed  by  the  Roman  genius  for 
system,  and  paternal  government  reached  its  zenith ;  the  trade 
regulations  of  Colbert  have  become  a  proverb  \ 

§  2.  The  first  systematic  attempt  to  form  an  economic 
science  on  a  broad  basis  was  made  in  France  The  Physio - 
about  the  middle  of  the  eighteenth  century  by  a  "^^^^ 
group  of  statesmen  and  philosophers  under  the  leadership  of 
Quesnay,  the  noble-minded  physician  to  Louis  XY.  The 
corner-stone  of  their  policy  was  obedience  to  Nature,  and  they 
were  therefore  called  Physiocrats^. 

1  It  was  just  at  this  time  that  economic  theory  first  took  shape  and  the  so- 
called  Mercantile  system  became  prominent.  The  Mercantilists  are  commonly 
believed  to  have  promoted  the  state  regulation  of  trade  and  industry.  But 
they  did  not.  The  regulations  and  restrictions  which  are  found  in  their  sys- 
tem belonged  to  the  age;  the  changes  which  they  set  themselves  to  bring 
about  were  in  the  direction  of  the  freedom  of  enterprise.  In  opposition  to 
those  who  wished  to  prohibit  absolutely  the  exportation  of  the  precious 
metals,  they  argued  that  it  should  be  permitted  in  all  cases  in  which  the  trade 
would  in  the  long  run  bring  more  gold  and  silver  into  the  country  than  it  took 
out.  They  thus  started  the  movement  towards  economic  freedom,  which  gra- 
dually went  on  broadening  till,  in  the  latter  half  of  the  eighteenth  century, 
the  time  was  ripe  for  the  doctrine  that  the  well-being  of  the  community 
almost  always  suffers  when  the  State  attempts  to  oppose  its  own  artificial 
regulations  to  the  "natural"  liberty  of  every  man  to  manage  his  own  affairs 
in  his  own  way.     (For  details  see  Principles  I.  iv.  1.) 

2  They  fell  into  a  confusion  of  thought  which  was  common  even  among 
scientific  men  of  their  time,  but  which  has  been  banished  after  a  long  struggle 
from  the  physical  sciences.  They  confused  ethical  princijiles  of  conformity  to 
Nature,  which  ordain  that  certain  things  ouyht  to  be  done,  with  those  causal 


28  BOOK  I.  CH.  IV.  §§  2,  3. 

The  next  great  step  in  advance,  the  greatest  step  that 
economics  has  ever  taken,  was  the  work,  not  of  a  school  but 
of  an  individual.  Adam  Smith  was  not  indeed 
am  mi  .  ^.^^  ^^^^  great  English  economist  of  his  time;  but 
his  breadth  was  sufficient  to  include  all  that  was  best  in  all 
his  contemporaries,  French  and  English;  and,  though  he  un- 
doubtedly borrowed  much  from  others,  yet  the  more  one 
compares  him  with  those  who  went  before  and  those  who 
came  after  him,  the  more  excellent  does  his  genius  appear. 

He  developed  the  Physiocratic  doctrine  of  F^ee  Trade  with 
so  much  practical  wisdom,  and  with  so  much  knowledge  of 
the  actual  ccyiditions  of  business,  as  to  make  it  a  great  force 
in  real  life; (and  he  is  most  widely  known  both  here  and 
abroad  for  his  argument^that  Government  generally  does  harm 
by  interfering  in  traded  J 

But  this  was  not  his  chief  work.  His  chief  work  was  to 
give  a  unity  to  economic  science  by  combining  and  developing 
the  speculations  of  his  French  and  English  contemporaries 
and  predecessors  as  ip^alue.  For  he  was  the  first  to  make  a 
careful  and  scientific  inquiry  into  the  manner  in  which  value 
measures  human  motive,  on  the  one  side  measuring  the  desire 
of  purchasers  to  obtain  wealth,  and  on  the  other  the  efibrts 
and  sacrifices  (or  "  Real  Cost  of  Production")  undergone  by 
its  producers. 

None  of  Adam  Smith's  contemporaries  and  immediate 
successors  had  a  mind  as  broad  and  well  balanced  as  his. 
But  they  did  excellent  work,  each  giving  himself  up  to  some 
class  of  problems  to  which  he  was  attracted  by  the  natural 

laws  which  science  discovers  by  interrogating  Nature,  and  which  state  that 
certain  results  loill  follow  from  certain  causes.  But  the  chief  motive  of  their 
study  was  not,  as  it  had  been  with  most  of  their  predecessors,  to  increase  the 
riches  of  merchants  and  fill  the  exchequers  of  kings;  it  was  to  diminish  the 
suffering  and  degradation  which  was  caused  by  extreme  poverty.  They  thus 
gave  to  economics  its  modern  aim  of  seeking  after  such  knowledge  as  may 
help  to  raise  the  quality  of  human  life.     (See  Princijdes  I.  iv.  2.) 

1  He  was  however  aware  that  the  interests  of  the  individual  trader  do  not 
always  coincide  with  those  of  the  public ;  comp.  Princi])les  I.  iv.  3. 


GROWTH  OF  ECONOMIC   SCIENCE.  29 

bent  of  his  genius,  or  the  special  events  of  the  time  in  which 
he  wrote.  During  the  remainder  of  the  eighteenth  century 
the  chief  economic  writings  were  historical  and  descriptive, 
and  bore  upon  the  condition  of  the  working  classes,  especially 
in  the  agricultural  districts  \ 

§  3.  But  at  the  beginning  of  this  century  statesmen  and 
merchants,  with  Ricardo^  at  their  head,  again  Ricardoand 
threw  themselves  into  problems  of  money  and  his  followers, 
foreign  trade  with  even  more  energy  than  they  used  to  do 
when  these  questions  were  first  started  in  the  earlier  period 
of  the  great  economic  change  at  the  end  of  the  Middle  Ages ; 
and  so  long  as  they  were  well  within  their  own  province 
their  work  was  excellent  ^. 

There  was  however  a  certain  narro^jiess  in  their  views  of 
social  and  economic  problems.  The  people  whom  they  knew 
most  intimately  were  business  men;  and  they  sometimes 
expressed  themselves  so  carelessly  as  almost  to   imply  that 

1  Arthur  Young  continued  the  inimitable  records  of  his  tour,  Eden  wrote  a 
histoiy  of  the  poor  which  has  served  both  as  a  basis  and  as  a  model  for  all 
succeeding  historians  of  industry ;  while  Malthus  showed  by  a  careful  investi- 
gation of  history  what  were  the  forces  which  had  as  a  matter  of  fact  controlled 
the  growth  of  population  in  different  countries  and  at  different  times. 

2  Ricardo  himself,  and  many  of  his  chief  followers  were  much  influenced 
by  Bentham.  See  Pnnciples  I.  rv.  4  and  5  on  this  subject  and  for  a  fui-ther 
notice  of  the  character  of  Ricardo's  work, 

8  The  theory  of  currency  is  just  that  part  of  economic  science  in  which  but 
little  harm  is  done  by  neglecting  to  take  much  account  of  any  human  motives 
except  the  desire  for  wealth ;  and  the  brilliant  school  of  deductive  reasoning 
which  Ricardo  led  was  here  on  safe  ground.  They  next  addressed  themselves 
to  the  theory  of  foreign  trade  and  cleared  away  many  of  the  flaws  which  Adam 
Smith  had  left  in  it.  There  is  no  other  part  of  economics  except  the  theory 
of  money,  which  so  nearly  falls  within  the  range  of  pure  deductive  reasoning. 
It  is  true  that  a  full  discussion  of  a  free  trade  policy  must  take  account  of 
many  considerations  that  are  not  strictly  economic ;  but  most  of  these,  though 
important  for  agricultural  countries,  and  especially  for  new  countries,  had 
little  bearing  in  the  case  of  England. 

During  all  this  time  the  study  of  economic  facts  was  not  neglected  in 
England;  and  indeed  the  pubhc  and  private  collections  of  statistics  and  the 
economic  histories  that  were  produced  in  England  at  the  end  of  the  last 
century  and  the  beginning  of  this,  may  fairly  be  regarded  as  the  origin  of 
systematic  historical  and  statistical  studies  in  economics. 


30  BOOK  I.  CH.  IV.  §§  3,  4. 

all  other  Englishmen  were  very  much  like  those  whom  they 
knew  in  the  city.  Partly  indeed  for  the  sake  of  simplicity, 
they  argued  as  though  everyone  were  quick  to  find  out  where 
his  own  pecuniary  interest  lay,  and  to  seek  it  to  the  neglect 
of  all  other  considerations.  They  often  spoke  of  labour  as  a 
coiijmodity  without  staying  to  'throw  themselves  into  the 
point  of  view  of  the  workman;  and  without  dwelling  upon 
the  allowances  to  be  made  for  his  human  passions,  his  in- 
stincts and  habits,  his  sympathies  and  antipathies,  his  class 
jealousies  and  class  adhesiveness,  his  want  of  knowledge  and 
of  the  opportunities  for  free  and  vigorous  action.  Ijhey 
s^Z  thei'efore  attributed  to  the  forces  of  suppl^and  demand  a 
much  more  mechanical  and  regular  action  than  is  to  IBelound 
in  real  life^Jp-nd  they  laid  down  laws  with  regard  to  profits 
and  wages  that  did  not  really  hold  even  for  England  in  their 
own  time. 

But  their  most  vital  fault  was  that  they  did  not  see  how 
liable  to  change  are  the  habits  and  institutions  of  industry. 
In  particular  they  did  not  see  that  the  poverty  of  the  poor 
is  the  chief  cause  of  that  weakness  and  inefficiency  which 
are  the  causes  of  their  poverty :  they  had  not  the  faith  that 
modern  economists  have  in  the  possibility  of  a  vast  improve- 
ment in  the  condition  of  the  working  classes. 

§  4.  When  we  come  to  compare  the  modern  view  of  the 
Mill  and  vital  problem  of  the  Distribution  of  Wealth  with 

modern  econo-  that  which  prevailed  at  the  beginning  of  the 
"^^^^'  century  we  shall  find  that  over  and  above  all 

changes  in  detail  and  all  improvements  in  scientific  accuracy  of 
reasoning,  there  is  a  fundamental  change  in  treatment;  for, 
while  the  earlier  economists  argued  as  though  man's  character 
and  efficiency  were  to  be  regarded  as  a  fi^d  quantity,  modern 
economists  keep  constantly  in  mind  the  fact  that  it  is  a 
product  of  the  circumstances  under  which  he  has  lived.  This 
change  in  the  point  of  view  of  economics  is  partly  due  to  the 
fact  that  the  changes  in  human  nature  during  the  last  fifty 


GROWTH   OF   ECONOMIC   SCIENCE.  31 

years  have  been  so  rapid  as  to  force  themselves  on  the 
attention;  partly  to  the  direct  influence  of  individual  writers, 
socialists  and  others;  and  partly  to  the  indirect  influence  of 
the  general  growth  of  scientific  knowledge,  and  especially  of 
biology'. 

The  first  important  indication  of  the  new  movement  was 
seen  in  John  Stuart  Mill's  admirable  Principles  of  Political 
Economif. 

Mill's  followers  have  continued  his  movement  away  from 
the  position  taken  up  by  the  immediate  followers  of  Ricardo; 
and  the  human  as  distinguished  from  the  mechanical  element 
is  taking  a  more  and  more  prominent  place  in  economics. 
The  new  temper  is  shown  alike  in  Jevons'  subtle  analysis  of 
utility  and  other  many-sided  and  original  work,  in  Cliffe  Leslie's 
historical  inquiries,  and  in  the  writings  of  Bagehot,  Cairnes, 
and  others  who  are  yet  living. 

England  has  recently  made  great  advances  in  wealth  and 
in  knowledge,  in  temperance  and  in  earnestness.  A  higher 
notion  of  social  duty  is  spreading  everywhere.  In  Parliament, 
in  the  press  and  in  the  pulpit,  the  spirit  of  humanity  speaks 
more  distinctly  and  more  earnestly  than  it  did.  Mill  and 
the  economists  who  have  followed  him,  have  helped  onwards 
this  general  movement,  and  they  in  their  turn  have  been 
helped  onwards  by  it.  At  the  same  time  the  historical  basis 
of  the  science  is  becoming  broader,  and  its  reasonings  more 
careful  and  precise.  This  greater  exactness  is  showing  that 
many  of.  the  older  applications  of  general  reasoning  were 
invalid,  because  no  care  had  been  taken  to  think  out  all 
the  assumptions  that  were  implied  and  to  see  whether  they 
could  fairly  be  made  in  the  special  cases  under  discussion; 
and  many  dogmas  have  been  destroyed  which  appeared  to  be 
1  On  this  point  see  Principles  I.  iv.  7. 

12  He  had  been  educated  by  his  father  in  the  straitest  tenets  of  Bentham 
and  Ricardo;  and  in  1830  he  wrote  an  essay  on  economic  method  in  which  he 
proposed  to  give  increased  sharpness  of  outline  to  the  abstractions  of  the 
science.  But  in  his  Piinciples,  written  in  1848,  he  took  account  of  all  sides  of 
human  nature,  and  adhered  closely  to  the  facts  of  life. 
i 


32  BOOK  I.   CH.  IV.   §  4. 

simple  only  because  they  were  loosely  expressed;  but  which, 
for  that  very  reason,  served  as  an  armoury  with  which 
partisan  disputants  (chiefly  of  the  capitalist  class)  have 
equipped  themselves  for  the  fray. 

This  destructive  work  might  appear  at  first  sight  to 
have  diminished  the  value  of  processes  of  general  reasoning 
in  economics:  but  really  it  has  had  the  opposite  result.  It 
has  cleared  the  ground  for  newer  and  stronger  machinery, 
which  is  being  steadily  and  patiently  built  up.  It  has  enabled 
us  to  take  broader  views  of  life,  to  proceed  more  surely  though 
more  slowly,  to  be  more  scientific  and  much  less  dogmatic 
than  those  good  and  great  men  who  bore  the  first  brunt  of  the 
battle  with  the  difiiculties  of  economic  problems;  and  to  whose 
pioneering  work  we  owe  our  own  more  easy  course.  But  this 
brings  us  to  consider  the  scope  and  the  methods  of  economics 
as  they  are  now  understood  \ 

1  In  America,  in  Austria  and  France,  in  Italy  and  the  Netherlands,  and 
above  all  in  Germany,  the  last  fifty  years  have  seen  important  contributions  to 
economic  science.  Germans  have  taken  the  lead  in  the  "comparative"  study 
of  economic,  as  well  as  of  general  history.  They  have  brought  side  by  side 
the  social  and  industrial  phenomena  of  different  countries  and  of  different 
ages ;  have  so  arranged  them  that  they  throw  light  upon  and  interpret  one 
another,  and  have  studied  them  all  in  connection  with  the  suggestive  history 
of  jurisprudence.  It  would  be  difficult  to  overrate  the  value  of  the  work  which 
they  and  their  fellow  workers  in  other  countries  have  done  in  tracing  and 
explaining  the  history  of  economic  habits  and  institutions.  It  is  one  of  the 
great  achievements  of  our  age;  and  an  important  addition  to  our  real  wealth. 
It  has  done  more  than  almost  anything  else  to  broaden  our  ideas,  to  increase 
our  knowledge  of  ourselves,  and  to  help  us  to  understand  the  central  plan,  as 
it  were,  of  the  Divine  government  of  the  world. 

On  the  recent  progress  of  economics  abroad,  see  PrincivUs  I.  iv.  8. 


I 


CHAPTER   V. 

THE   SCOPE   OF    ECONOMICS. 

,§   1.     All  aspects  of   social  life  are  connected  with  one 
another  :  none  can  be  studied  profitably  without  taking  some 
account  of  the  others.     But  when  the  attempt  is  made  to 
discuss  them  in  one  unified  social  science,   the    Relation  of 
results  are  not  satisfactory.     One  thinker  after   economics  to 

,  ,  T      ,  •  1  •   1      other  branches 

another  proposes  broad  generalizations,  which  of  social 
fascinate  men's  minds  for  a  time,  but  seldom  s<='e"ce. 
endure  for  long  the  test  of  severe  scrutiny.  Thus,  in  social  as 
well  as  physical  science,  experience  shows  that  solid  progress 
can  be  made  only  by  breaking  up  broad  problems  into  parts, 
and  working  at  each  separately :  and  the  economist  is  follow- 
ing the  best  examples  that  have  been  set  by  other  scientific 
students  when  he  gives  his  chief  attention  to  certain  limited 
aspects  of  social  life,  while  yet  taking  some  account  of  all 
others^. 

§  2.  What  then  ^re  thaJLiiniis  of  those  social  studies  which 
the  economist  regards  as  his  special  domain  ?  To  answer  this' 
we  must  first  consider  what  are  the  advantages  which  have 
enabled  economics,  though  far  behind  the  more  advanced 
physical  sciences,  yet  to  outstrip  every  other  branch  of  social 

1  As  Mill  says  {On  Comte,  p.  82): — "A  person  is  not  likely  to  be  a  good 
economist  who  is  nothing  else.  Social  phenomena  acting  and  re-acting  on  one 
another,  they  cannot  rightly  be  understood  apart ;  but  this  by  no  means  proves 
that  the  material  and  industrial  phenomena  of  society  are  not  themselves  sus- 
ceptible of  useful  generalizations,  but  only  that  these  generalizations  must 
necessarily  be  relative  to  a  given  stage  of  social  advancement."  On  the  whole 
subject  see  Dr  Keynes'  Scope  and  Method  of  Political  Economy. 

M.  a 


34  BOOK  I.  CH.  V.  §§  2,  3. 

science.  For  it  would  seem  reasonable  to  conclude  that  any 
broadening  of  the  scope  of  the  science  which  brings  it  more 
closely  to  correspond  with  the  actual  facts,  and  to  take  account 
of  the  higher  aims  of  life,  will  be  a  gain  on  the  balance  pro- 
vided it  does  not  deprive  the  science  of  those  advantages: 
but  that  any  further  extension  beyond  that  limit  would  cause 
more  loss  than  gain. 

The  advantage  which  economics  has  over  other  branches 
of  social  science  appears  to  arise  from  the  fact  that  it  concerns 
Economics  itself  chiefly  with  that  class  of  actions  the  mo- 
chieflycon-       tives   of    which   are   measurable,    and   therefore 

cerned  with  •    n  •       i     /•  .         .  ^ 

measairabie  Specially  suited  for  scientific  treatment.  An 
motives.  opening  is  made  for  the  methods  and  the  tests  of 

exact  science  as  soon  as  the  force  of  a  person's  motives  can  be 
measured  by  the  sum  of  money,  which  he  will  just  give  up 
in  order  to  secure  a  desired  satisfaction,  or  again  the  sum 
which  is  just  required  to  induce  him  to  undergo  a  certain 
fatigue. 

But  here  a  little  explanation  is  needed.  The  economist 
does  not  attempt  to  weigh  the  real  value  of  the  higher  affec- 
tions of  our  nature  against  those  of  our  lower :  he  does  not 
balance  the  love  for  virtue  against  the  desire  for  agreeable  food. 
Such  measure-  -^^^  ^®  estimates  the  incentives  to  action  by  their 
ment  corre-  effects  just  in  the  same  way  as  people  do  in  com- 
.practiceof  ^  nion  life.  He  makes  no  strange  assumptions, 
ordinary  life,  jjq  arbitrary  hypotheses;  but  he  follows  the 
course  of  ordinary  conversation,  differing  from  it  only  in 
taking  more  precautions  to  make  clear  the  limits  of  his  know- 
ledge as  he  goes.  '  These  precautions  are  laborious,  and  make 
some  people  think  that  economic  reasonings  are  artificial.  But 
the  opposite  is  the  fact.  For  he  does  but  bring  into  promi- 
nence those  assumptions  and  reservations,  which  everyone 
makes  unconsciously  every  day. 

For  instance,  if  we  find  a  man  in  doubt  whether  to  spend 
a  few  pence  on  a  cigar,  or  a  cup  of  tea,  or  on  riding  home 


THE   SCOPE   OF   ECONOMICS.  35 

instead  of  walking  home,  then  we  may  follow  ordinary  usage, 
and  say  that  he  expects  from  them  equal  pleasures.  Again  if 
we  find  that  the  desires  to  secure  either  of  two  pleasures  will 
induce  people  in  similar  circumstances  each  to  do  just  an 
hour's  extra  work,  or  will  induce  men  in  the  same  rank  of  life 
and  with  the  same  means  each  to  pay  a  shilling  for  it,  we  then 
may  say  that  those  pleasures  are  equal  for  our  purpose. 

Next  suppose  that  the  person  whom  we  saw  doubting  be- 
tween several  little  gratifications  for  himself  had  thought  after 
a  while  of  a  poor  invalid  whom  he  would  pass  on  his  way 
home,  and  had  spent  some  time  in  making  up  his  mind  whether 
he  would  choose  a  physical  gratification  for  himself,  or  would 
do  a  kindly  act  and  rejoice  in  another's  joy.  As  his  desires 
turned  now  towards  the  one,  now  the  other,  there  would  be 
change  in  the  quality  of  his  mental  states.  But  the  economist 
treats  them  in  the  first  instance  merely  as  motives  to  action, 
which  are  evenly  balanced.  No  doubt  his  concern  with  them 
does  not  end  there.  Even  for  the  narrower  uses  of  economic 
studies,  it  is  important  to  know  whether  the  desires  which 
prevail  are  such  as  will  help  to  build  up  a  strong'and  righteous 
character.  \,And  in  the  broader  uses  of  those  studies,  when 
they  are  being  applied  to  practical  problems,  the  economist, 
like  every  one  else,  must  concern  himself  with  the  ultimate 
aims  of  man,  and  take  account  of  differences  in  real  value 
between  gratifications  that  are  equally  powerful  motives  or 
incentives  to  action  and  have  therefore  equal  mone^jralues. 
A  study  of  these  money  values  is  only  the  starting-point  otm 
economics ;  but  it  is  the  starting-point.  \  f 

§  3.  There  are  other  ways  in  which  the  money  values  of 
various  efforts  and  benefits  fail  to  measure  their  real  values. 
Some  people  can  derive  more  happiness  and  more  well-being  of 
all  kinds  than  others  from  the  same  money  income.  When  a 
tax  of  <£1  is  taken  from  each  of  two  persons  hav-  Difficulties  of 
ing  an  income  of  £300  a-year,  each  will  give  up  measurement, 
that  =£1  worth  of  pleasure  (or  other  satisfaction)  which  he  can 

3-2 


36  BOOK   I.   CH.  V.  §§  3,  4. 

most  easily  part  with,  i.e.,  each  will  give  up  what  is  measured 
to  him  by  just  £1 :  but  the  intensities  of  the  satisfaction  given 
up  may  not  be  nearly  equal. 

Again  the  desire  to  earn  a  shilling  is  a  much  stronger 
motive  to  a  poor  man  with  whom  money  is  scarce  than  to  a 
rich  one.  A  rich  man  in  doubt  whether  to  spend  a  shilling 
on  a  single  cigar,  is  weighing  against  one  another  smaller 
pleasures  than  a  poor  man,  who  is  doubting  whether  to  spend 
a  shilling  on  a  supply  of  tobacco  that  will  last  him  for  a 
month.  The  clerk  with  £100  a  year  will  walk  to  business  in 
a  heavier  rain  than  the  clerk  with  £300  a  year;  for  a  six- 
penny omnibus  fare  measures  a  greater  pleasure  to  the  poorer 
man  than  to  the  richer.  If  the  poorer  man  spends  the  money, 
he  will  suffer  more  from  the  want  of  it  afterwards  than  the 
richer  would.  The  pleasure  that  is  measured  in  the  poorer 
man's  mind  by  sixpence  is  greater  than  that  measured  by  it  in 
the  richer  man's  mind. 

These  difficulties  can  however  be  avoided.  For  if  we  take 
Allowance  for  ^^^I'^gss  Sufficiently  broad  to  cause  the  personal 
the  different  peculiarities  of  individuals  to  counterbalance  one 
moiey\o  rich  another,  the  money  which  people  of  equal  incomes 
and  poor.  y^[i\  give  to  obtain  a  pleasure  or  avoid  a  pain  is  a 

sufficiently  accurate  measure  of  the  pleasure  or  the  pain.  If 
there  are  a  thousand  families  living  in  Sheffield  and  another 
thousand  in  Leeds,  each  with  about  £100  a-year,  and  a  tax  of 
£1  is  levied  on  all  of  them,  we  may  be  sure  that  the  loss  of 
pleasure  which  the  tax  will  cause  in  Sheffield  is  very  nearly 
equal  to  that  which  it  will  cause  in  Leeds  :  and  similarly  any- 
thing that  increased  all  the  incomes  by  a  £1  would  give  com- 
mand over  very  nearly  the  same  amount  of  additional  pleasure 
in  the  two  towns. 

But  next  suppose  that  instead  of  falling  on  families  with 
an  income  of  about  £100  a-year,  the  loss  fell  in  each  of  the 
two  towns  on  600  families  with  an  average  income  of  £50 
and  on  400  families  with  an  average  income  of.  £100;  then, 


THE  SCOPE   OF   ECONOMICS.  37 

although  the  loss  of  pleasures  to  the  poorer  group  would  be 
much  greater  than  to  the  richer,  yet  the  aggregate  loss  in 
Leeds  might  be  taken  to  be  about  the  same  as  in  Sheffield; 
because  in  each  case  it  was  distributed  in  equal  proportions 
among  the  richer  and  the  poorer.  And  in  fact  it  happens 
that  by  far  the  greater  number  of  the  events  with  which  eco- 
nomics deals  affect  in  about  equal  proportions  all  the  different 
classes  of  society;  so  that  if  the  money  measures  of  the  hap- 
piness caused  by  two  events  are  equal,  there  is  not  in  general 
any  very  great  difference  between  the  amounts  of  the  happi- 
ness in  the  two  cases. 

Next  it  must  be  remembered  that  nobody's  actions  are  all 
governed  by  careful  calculation ;  in  fact  even  the 

°  -,       ,  ,  _..         It  is  not  as- 

most  deliberate  persons  are  much  under  the  m-  sumed  that  all 

fluence  of  habit  and  impulse.     But  on  the  other  deliberate 
hand  hS/^t  itself  is  largely  based  on  deliberate 
choice :  and  further  the  side  of  life  with  wLich  economics  is  \ 
specially  concerned  is  that  in  which  man's  conduct  is  most  \ 
deliberate,  and  in  which  he  most  often  reckons  up  the  advan- 
tages and  disadvantages  of  any  particular  action  before  he 
enters  on  it.     It  is  that  side  of  his  life  in  which,  when  he  does 
follow  habit  and  custom,  and  proceed  for  the  moment  without 
calculation,  the  habits  and  customs  themselves  are  most  nearly 
sure  to  have  proceeded  from  closely  watching  the  advantages 
and  disadvantages  of  different  courses  of  .conduct. 

§  4.  Thus  "  money  "  or  "  general  purchasing  power "  or| 
"  command  over  material  wealth,"  is  the  centre  around  which! 
economic  science  clusters;  this  is  so,  not  because  money  or 
material  wealth  is  regarded  as  the  main  aim  of  human  effort, 
nor  even  as  affording  the  main  subject-matter  for  the  study 
of  the  economist,  but  because  in  this  world  of  ours  it  is  the 
one  convenient,  means  of  measuring  humq.n  motive  on  a  large 
scale;  and  if  the  older  economists  had  made  this  clear,  they 
would  have  escaped  many  grievous  misrepresentations.  The 
splendid  teachings  of  Carlyle  and  Rusk  in  as  to  the  right  aims 


38  BOOK  I.  CH.  V.  §§  4,  5. 

of  liuman  endeavour  and  the  right  uses  of  wealth,  would  not 

then  have  been  marred  by  bitter  attacks  on  eco- 

motivesare       nomics,  based  on  the  mistaken  belief  that  that 

not  exclusively  science  had  no  concern  with  any  motive  except 

selfish.  ''  \ 

the  selfish   desire   for   wealth,   or   even   that   it 
inculcated  a  policy  of  sordid  selfishness'. 

(So  far  from  confining  their  attention  to  selfish  motives, 
economists  have  always  given  a  prominent  place  to  the 
unselfish  sacrifices  which  men  make  in  order  to  secure  com- 
fortable provision  for  their  families.  The  grounds  for  doing 
this  are  obvious  on  the  principle  which  we  have  adopted. 
For  family  affection  acts  with  so  much  uniformity  in  any 
given  stage  of  civilization  that  its  effects  can  be  systema- 
tically observed,  reduced  to  law  and  measured ;  and  it  is  there- 
fore reasonable  for  economists  to  take  it  always  into  account ; 
while  yet  they  do  not  attempt  to  study  the  working  of  many 
other  benevolent  and  self-sacrificing  motives  whose  action  is 
irregbijiar.  But  the  greater  part  of  those  actions,  which  are 
due  to  "a  feeling  of  duty  and  love  of  one's  neighbour,  cannot 
be  classed,  reduced  to  law  and  measured;  and  it  is  for  this 
reason,  and  not  because  they  are  not  based  on  self-interest, 
that  the  machinery  of  economics  cannot  be  brought  to  bear  on 
them. 

§  5.  There  is  another  direction  in  which  the  range  of 
The  desire  for  economics  has  been  wider  than  is  commonly 
money  is  the      thought.     When  the  motive  to  a  man's  action  is 

result  of  many  o 

various  mo-  spoken  of  as  Supplied  by  the  money  which  he 
will  earn,  it  is  not  meant  that  his  mind  is  closed 
to  all  other  considerations  save  those  of  gain.  For  even 
the  most  purely  business  relations  of  life  assume  honesty 
and  good  faith;  while  many  of  them  take  for  granted,  if  not 

1  It  is  pointed  out  in  Principles  I.  v.  4,  that  a  theory  of  economics  similar 
to  our  own  might  exist  in  a  world  in  which  there  was  no  private  propertj  in 
material  wealth,  and  no  money,  provided  that  motives  could  be  measured,  as 
for  instance  by  transferable  honours. 


THE  SCOPE  OF  ECONOMICS.  39 

generosity,  yet  at  least  the  absence  of  meanness ;  and  the 
pride  which  every  honest  man  takes  in  acquitting  himself 
well,  is  an  important  factor  of  economic  efficiency.  Again, 
much  of  the  work  by  which  people  earn  their  living  is 
pleasurable  in  itself;  and  there  is  truth  in  the  contention 
of  socialists  that  more  of  it  might  be  made  so.  Indeed  in 
business  work,  that  seems  at  first  sight  unattractive,  many 
persons  find  a  distinct  pleasure,  which  is  partly  direct,  and 
partly  arises  from  the  gratification  which  the  work  affords  to 
their  instincts  of  rivalry  and  power.  \  Just  as  a  race-horse  or 
an  athlete  strains  every  nerve  to  get  in  advance  of  his  com- 
petitors, and  delights  in  the  strain;  so  a  manufacturer  or  a 
trader  is  often  stimulated  much  more  by  the  hope  of  victory 
over  his  rivals  than  by  the  desire  to  add  something  to  his 
fortune.  \  ' 

But  a;gain,  the  desire  to  make  money  does  not  itself 
necessarily  proceed  from  motives  of  a  low  order,  even  when 
it  is  to  be  spent  on  oneself.  Money  is  a  nieans.  towards  ends, 
and  if  the  ends  are  noble,  the  "desire  for  the  means  is  not 
ignoble.  The  lad  who  works  hard  and  saves  all  he  can,  in 
order  to  be  able  to  pay  his  way  afterwards  at  a  University, 
is  eager  for  money;  but  his  eagerness  is  not  ignoble.  In 
short,  money  is  general  purchasing  power,  and  is  sought  as  a 
means  to  all  kinds  of  ends,  high  as  well  as  low,  spiritual  as 
well  as  material. 

The  earlier  English  economists  paid  almost  exclusive  at- 
tention to  the  motives  of  individual  action.  Motives  to  coi- 
But  it  must  not  be  forgotten  that  economists,  lective  action, 
like  all  other  students  of  social  science,  are  concerned  with 
individuals  chiefly  as  members  of  the  social  organism.  As 
a  cathedral  is  something  more  than  the  stones  of  which  it  is 
built,  as  a  pearson  is  something  more  than  a  series  of  thoughts 
and  feelings,  «o  the  life  of  society  is  something  more  than  the 
sum,  of  the  lives  of  its  individual  members\  It  is  true  that 
the  action  of  the  whole  is  made  up  of  that  or  its  constituent 


40  BOOK  I.   CH.  V.  §§  5,  6. 

parts;  and  that  in  most  economic  problems  the  l>est  starting- 
point  is  to  be  found  in  the  motives  that  affect  the  individual, 
regarded  not  indeed  as  an  isolated  atom,  but  as  a  member  of 
some  particular  trade  or  industrial  group ;  but  it  is  also  true, 
as  German  writers  have  well  urged,  that  economics  has  a  great 
and  an  increasing  concern  in  motives  connected  with  the 
collective  ownership  of  property  and  the  collective  pursuit  of 
important  aims.  Many  new  kinds  of  voluntary  association  are 
growing  up  under  the  influence  of  other  motives  besides  that  of 
pecuniary  gain ;  and  the  Co-operative  movement  in  particular 
is  opening  to  the  economist  new  opportunities  of  measuring 
motives  whose  action  it  had  seemed  impossible  to  reduce  to 
any  sort  of  law. 

§  6.  To  conclude  provisionally :  "We  study  the  actions  of  indi- 
viduals, but.  study  them  in  relation  to  social  life ;  and  concern 
ourselves  but  little  with  personal  peculiarities  of  temper  and 
character.  We  take  as  little  notice  as  possible  of  individual 
The  individual  Peculiarities  of  temper  and  character.  We  watch 
regarded  as  a  the  conduct  of  a  whole  class  of  people — sometimes 
industrial  the  whole  of  a  nation,  sometimes  only  those  living 

group.  jj^  a  certain  district,  more  often  those  engaged 

jn  .some  particular  trade  at  some  time  and  place  :  and  by  the 
aid  of  statistics,  or  in  other  ways,  we  ascertain  how  much 
money  on  the  average  the  members  of  the  particular  group 
we  are  watching,  are  just  willing  to  pay  as  the  price  of  a 
certain  thing  which  they  desire,  or  how  much  must  be  offered 
to  them  to  induce  them  to  undergo  a  certain  effort  or  ab- 
stinence that  they  dislike.  The  measurement  of  motiye-^us 
obtained  is  not  indeed  perfectly  accurate;  for  if  it  were, 
economics  would  rank  with  the  most  advanced  of  the  physical 
sciences,  and  not  as  it  actually  does  with  the  least  advanced. 

But  yet  the  measurement  is  accurate  enough  to  enable 
experienced  persons  to  forecast  fairly  well  the  extent  of  the 
results  that  will  follow  from  changes  in  which  motives  of  ^liis 
kind   are   chiefly  concerned.     Thus,    for   instance,    they    can 


THE  SCOPE  OF  ECONOMICS.  41 

estimate  very  closely  the  payment  that  will  be  required  to 
produce  an  adequate  supply  of  labour  of  any  grade,  from  the 
lowest  to  the  highest,  for  a  new  trade  which  it  is  proposed  to 
start  in  any  place.  And,  when  they  visit  a  factory  of  a  kind 
that  they  have  never  seen  before,  they  can  tell  within  a 
shilling  or  two  a  week  what  any  particular  worker  is  earning, 
by  merely  observing  how  far  his  is  a  skilled  occupation  and 
what  strain  it  involves  on  his  physical,  mental  and  moral 
faculties. 

And,  starting  from  simple  considerations  of  this  kind, 
they  can  go  on  to  analyse  the  causes  which  govern  the  local 
distribution  of  different  kinds  of  industry,  the  terms  on  which 
people  living  in  distant  places  exchange  their  goods  with  one 
another,  and  so  on.  They  can  explain  and  predict  the  ways 
in  which  fluctuations  of  credit  will  affect  foreign  trade,  or 
again  the  extent  to  which  the  burden  of  a  tax  will  be  shifted 
from  those  on  whom  it  is  levied  on  to  those  for  whose  wants 
they  cater,  and  so  on. 

In  all  this  economists  deal  with  man  as  he  is  :  not  with  an 
abstract  or  "  economic  "  man ;  but  a  man  of  flesh  and  blood ; 
influenced  by  egoistic  motives  and  shaping  his  business  life  to 
a  great  extent  with  reference  to  them ;  but  not 
above  the  frailties  of  vanity  or  recklessness,  and  deal  mainly 
not  below  the  delight  of  doing  his  work  well  for  ^n^e°buttot 
its  own  sake,  nor  below  the  delight  in  sacrificing  the  life  of  a  fie - 
himself  for  the  good  of  his  family,  his  neighbours,    *  '°"^   ^*"^" 
or  his  country,  and  not  below  the  love  of  a  virtuous  life  for  its 
own  sake.    They  deal  with  man  as  he  is.     But  being  concerned 
chiefly  with  those  aspects  of  life  in  which  the  action  of  motive 
is  so  regular  that  it  can  be  predicted,  and  the  estimate  of  the 
motor-forces  can  be  verified  by  results,  they  have  established 
their  work  on  a  scientific  basis  ^ 

1  Some  further  considerations,  chiefly  philosophical  and  logical,  bearing  on 
this  subject  will  be  found  in  Principles  I.  v. 


CHAPTER  YI. 

METHODS  OF  STUDY.      NATURE   OF   ECONOMIC   LAW. 

§  1.  It  is  the  business  of  economics,  as  of  almost  every 
other  science,  to  collect  facts,  to  arrange  and  interpret  them, 
and  to  draw  inferences  from  them.  All  the  devices  for  the 
discovery  of  the  relations  between  cause  and  eiFect,  which  are 
described  in  treatises  on  scientific  method,  have  to  be  used  in 
their  turn  by  the  economist :  there  is  not  any  one  method  of 
Induction  and  i'^'^^stigation  which  can  properly  be  called  the 
deduction  are  method  of  economics ;  but  every  method  must  be 
insepara  e.  made  Serviceable  in  its  proper  place,  either  singly 
or  in  combination  with  others.  And  as  the  number  of  com- 
binations that  can  be  made  on  the  chess-board  is  so  ofreat  that 
probably  no  two  games  exactly  alike  were  ever  played ;  so  no 
two  games  which  the  student  plays  with  nature  to  wrest  from 
her  her  hidden  truths,  which  were  worth  playing  at  all,  ever 
made  use  of  quite  the  same  methods  in  quite  the  same  way. 

But  in  some  branches  of  economic  inquiry  and  for  some 
purposes,  it  is  more  urgent  to  ascertain  new  facts,  than  to 
trouble  ourselves  with  the  mutual  relations  and  explanations 
of  those  which  we  already  have.  While  in  other  branches 
there  is  still  so  much  uncertainty  as  to  whether  those  causes  of 
any  event  which  lie  on  the  surface  and  suggest  themselves  at 
first  are  both  trus  causes  of  it  and  the  only  causes  of  it,  that  it 
is  even  more  urgently  needed  to  scrutinize  our  reasonings 
about  facts  which  we  already  know,  than  to  seek  for  more 
facts. 

The  reasoning  from  particular  facts  to  general  principles  is 
called   induction;    the  reasoning  from  general  principles   to 


METHODS   OF   STUDY.  43 

particular  facts  is  called  deduction.  fProf.  SchmoUer,  an  emi- 
nent German  historian  and  economist,  says  well :  "  Induction 
and  deduction  are  both  needed  for  scientific  thought  as  the 
right  and  left  foot  are  both  needed  for  walking.... They  rest  on 
the  same  tendencies,  the  same  beliefs,  the  same  needs  of  our 
reason."     | 

§  2.  There  is  however  no  scope  in  economics  for  long 
chains  of  deductive  reasoning;  that  is  for  chains  in  which  each 
link  is  supported,  wholly  or  mainly,  by  that  which  went  be- 
fore, and  without  obtaining  further  support  and  guidance  from 
observation  and  the  direct  study  of  real  life.    This 

.  .  Long  chains  of 

can  be  done  m  astronomy  and  m   some   other  mere  reason - 
branches  of  physical  science,  in  which  the  cha-  ^"ofi4\ie°^ 
racter  and  strength  of  all  the  chief   causes   at 
work  are  known  so  exactly  that  we  can  predict  beforehand 
the  effect  of  each  singly,  and  thence  infer  the  combined  effect 
of  all.     But  it  cannot  be  done  as  yet  in  chemistry;  for  we 
cannot  be  quite  sure   how  a  new  combination  of   chemical 
elements  will  work  until  we  have  tried.     And  when  drugs  are 
used  medicinally, "  it  is  often  found  that  they  affect  different 
people  in  different  ways :  it  is  not  always  safe  to  give  a  large 
dose  of  a  new  drug  to  one  patient,  trusting  to  the  fact  that  it 
has  worked  well  in  an  apparently  similar  case.    And  economics 
has  as  various  and  uncertain  a  subject-matter  to  deal  with  as 
has  medical  science. 

Thus  if  we  look  at  the  history  of  such  strictly  economic 
relations  as  those  of  business  credit  and  banking,  of  trade- 
unionism  or  co-operation,  we  see  that  modes  of  working,  that 
have  been  generally  successful  at  some  times  and  places,  have 
uniformly  failed  at  others.  The  difference  may  sometimes  be 
explained  simply  as  the  result  of  variations  in  general  en- 
lightenment, or  of  moral  strength  of  character  and  habits  of 
mutual  trust;  but  sometimes  the  explanation  is  more  difficult \ 

1  In  the  corresponding  section  of  Principles  (Ed.  iii.)  this  class  of  con- 
siderations is  studied  at  length.    It  is  shown  how  in  some  respects  economic 


44  BOOK   I.  CH.  VI.  §§  8 — 5. 

§  3.  On  the  other  hand,  there  is  need  at  every  stage  for 
The  expiana-  analysis,  that  is,  for  taking  to  pieces  each  complex 
tionofob-  part  and  studying  the  relations   of  the  several* 

served  facts         ^  *'      f  i  ,  i     i  ,    . 

involves  rea-  parts  to  one  another  and  to  the  whole :  and  m 
soning.  doing  this  we  are  constantly  making  inferences, 

that  is,  short  steps  of  reasoning  both  inductive  and  deductive. 
The  process  is  substantially  the  same  whether  we  are  explain- 
ing what  has  happened  or  predicting  what  is  likely  to  happen. 
lExplanation  and  prediction  are  really  the  same  mental  opera- 
jtion ;  though  they  are  worked  in  opposite  directions,  the  one 
|from  effect  to  cause,  the  other  from  cause  to  effect  \ 

Observation  may  tell  us  that  one  event  happened  with  or 
after  another,  but  only  by  the  aid  of  analysis  and  reason  can 
we  decide  whether  one  was  the  cause  of  the  other,  and  if  we 
reason  hastily  we  are  likely  to  reason  wrong.  Wider  ex- 
perience, more  careful  inquiry,  may  show  that  the  causes  to 
which  the  event  is  attributed  could  not  have  produced  it  un- 
aided ;  perhaps  even  that  they  hindered  the  event,  which  was 
brought  about  in  spite  of  them  by  other  causes  that  have 
escaped  notice^. 

forces  resemble  mechanical  rather  than  chemical  forces,  because  their  action 
in  combination  can  often  be  predicted  with  some  certainty  from  their  separate 
action;  and  how  this  fact  enables  deduction  to  go  a  little  further  in  economics 
than  it  otherwise  would.  The  classical  economists  are-often  supposed  to  have 
forged  long  chains  of  deductive  reasoning:  but  they  did  not:  they  had  too 
much  common  sense  and  practical  knowledge  of  the  affairs  of  life  to  attempt  it. 

1  It  is  only  when  we  go  beyond  a  first  step  that  a  great  difference  arises 
between  the  certainty  of  prediction  and  the  certainty  of  explanation :  for  any 
error  made  in  the  first  step  of  prediction  will  be  accumulated  and  intensified 
in  the  second ;  while  in  interpreting  the  past,  error  is  not  so  likely  to  be  accu- 
mulated; for  observation  or  recorded  history  will  probably  bring  a  fresh  check 
at  each  step. 

2  If  we  are  dealing  with  the  facts  of  remote  times  we  must  allow  for  the 
changes  that  have  meanwhile  come  over  the  whole  character  of  economic  life : 
however  closely  a  problem  of  to-day  may  resemble  in  its  outward  incidents 
another  recorded  in  history,  it  is  probable  that  a  closer  examination  will 
detect  a  fundamental  difference  between  their  real  characters.  Till  this  has 
been  made,  no  valid  argument  can  be  drawn  from  one  case  to  the  other. 

This  line  of  argument  is  developed  in  Principles  I.  vi.  §§  3,  4,  where  Cap- 
tain Mahan's  remark  that  more  light  is  thrown  on  modern  problems  by  the 


NATURE   OF   ECONOMIC   LAW.  45 

§  4.  The  part  which  systematic  scientific  reasoning  plays 
in  the  production  of    knowledge  resembles  that  ^ 

which  machinery  plays  in  the  production  of  machinery  of 
goods.  For  when  the  same  operation  has  to  be  ^'^*®"'^^- 
performed  over  and  over  again  in  the  same  way,  it  generally 
pays  to  make  a  machine  to  do  the  work ;  and  where  there  is 
so  much  changing  variety  of  detail  that  it  is  unprofitable  to 
use  machines  the  goods  must  be  made  by  hand.  Similarly  in 
knowledge,  when  there  are  any  processes  of  investigation  or 
reasoning  in  which  the  same  kind  of  work  has  to  be  done  over 
and  over  again  in  the  same  kind  of  way,  then  it  is  worth 
while  to  reduce  the  processes  to  system,  to  organize  methods 
of  reasoning  and  to  formulate  general  Laws. 

It  is  true  that  there  is  so  much  variety  in  economic 
problems,  economic  causes  are  intermingled  with  others  in 
so  many  different  ways,  that  exact  scientific  reasoning  will 
seldom  bring  us  very  far  on  the  way  to  the  conclusion  for 
which  we  are  seeking.  But  it  would  be  foolish  to  refuse  to 
avail  ourselves  of  its  aid,  so  far  as  it  will  reach  : — just  as 
foolish  as  would  be  the  opposite  extreme  of  supposing  that 
science  alone  can  do  all  the  work,  and  that  nothing  will 
remain  to  be  done  by  practical  instinct  and  trained  common 
sense  \ 

§  5.     A  scientific  Law   is  a  general  proposition  or  state- 
ment of  uniformity,  more  or  less  certain,  more  or  The  nature  of 
less  definite.     The  laws  of  gravitation,  of  conser-  scientific  laws. 

strategy  than  the  tactics  of  past  naval  warfare  is  adapted  to  the  teachings  of 
economic  history. 

1  Natural  instinct  will  select  rapidly  and  combine  justly  considerations 
which  are  relevant  to  the  issue  in  hand ;  but  it  will  select  chiefly  from  those 
which  are  familiar ;  it  will  seldom  lead  a  man  far  below  the  surface,  or  far  be- 
yond the  limits  of  his  personal  experience.  And  we  shall  find  that  in  econo- 
mics, neither  those  effects  of  known  causes,  nor  those  causes  of  known  effects 
which  are  most  patent,  are  generally  the  most  important.  "  That  which  is  not 
seen"  is  often  better  worth  studying  than  that  "which  is  seen."  Especially  is 
this  the  case  when  we  are  trying  to  go  behind  the  immediate  causes  of  events 
and  trying  to  discover  their  causes  {catcsce  causantes). 


46  BOOK  I.   CH.   VI.  §§   5,  6. 

vation  of  energy,  &c.  in  physics  are  universal,  certain  and 
exact.  Economics  has  of  course  no  laws  of  this  class  :  but  it 
has  many  which  may  rank  with  the  secondary  laws  of  biology 
and  medical  science,  and  even  the  science  of  the  tides.  For 
these  laws  also  are  concerned  with  the  action  of  many  different 
kinds  of  causes,  and  vary  much  in  definiteness,  in  certainty 
and  in  range  of  application'. 

A  Law  of  social  science,  or  a  Social  law,  is  a  statement 

that  a  certain  course  of  action  may  be  expected 

aw.     ^j^jjgj.  certain  conditions  from  the  members  of  a 


social  group. 

Economic  laws  are  those  Social  Laws  which  relate  to 
Economic  branches  of  conduct  in  which  the  strength  of  the 

law.  motives  chiefly  concerned  can  be  measured  by  a 

money  price.  They  are  statements  in  the  indicative  mood  of 
relations  between  causes  and  effects,  and  not  precepts  in  the 
imperative  mood^. 

Following  our  definition  of  an  economic  law,  we  may  say 
that  the  course  of  action  which  may  be  expected  under 
certain  conditions  from  the  members  of  an  industrial  group  is 
the  NORMAL  action  of  the  members  of  that  group  ^. 

1  The  number  of  general  statements  that  are  made  in  the  course  of  every 
science  is  very  great :  but  it  is  not  customary  to  give  to  all  of  them  a  formal 
character  and  name  them  as  Laws.  The  selection  is  directed  less  by  purely 
scientific  considerations  than  by  practical  convenience.  If  there  is  any  general 
statement  which  one  wants  to  bring  to  bear  so  often,  that  the  trouble  of  quo- 
ting it  at  length,  when  needed,  is  greater  than  that  of  burdening  the  discussion 
with  an  additional  formal  statement  and  an  additional  technical  name,  then  it 
receives  a  special  name,  otherwise  not. 

2  Of  course  an  economist  retains  the  liberty,  common  to  all  the  world,  of 
expressing  his  opinion  that  a  certain  course  of  action  is  the  right  one  under 
given  circumstances ;  and  if  the  difficulties  of  the  problem  are  chiefly  economic 
he  may  speak  with  a  certain  authority.  But  so  may  a  chemist  with  regard  to 
other  problems,  such  for  instance  as  some  of  those  connected  with  sanitation 
and  with  dyeing ;  and  yet  the  laws  of  chemistry  are  not  precepts. 

3  Corresponding  to  the  substantive  "law"  is  the  adjective  "legal."  But 
this  term  is  used  only  in  connection  with  "law"  in  the  sense  of  an  ordinance 
of  government;  not  in  the  sense  of  a  scientific  statement  of  connection 
between  cause  and  effect.    The  adjective  used  for  this  purpose  is  derived  from 


NATURE   OF   ECONOMIC   LAW.  47 

Normal  action  is  not  always  morally  right;   very  often  it 
is  action  which  we  should  use  our  utmost  efforts 

-n         •  1  1  I'l  •  p       Normal. 

to  stop,  ror  uistance,  the  normal  condition  oi 
many  of  the  very  poorest  inhabitants  of  a  large  town  is  to  be 
devoid  of  enterprise,  and  unwilling  to  avail  themselves  of  the 
opportunities  that  may  offer  for  a  healthier  and  less  squalid 
life  elsewhere;  they  have  not  the  strength,  physical,  mental 
and  moral,  required  for  working  their  way  out  of  their  miser- 
able surroundings.  The  existence  of  a  considerable  supply  of 
labour  ready  to  make  match-boxes  at  a  very  low  rate  is 
normal  in  the  same  way  that  a  contortion  of  the  limbs  is  a 
normal  result  of  taking  strychnine.  It  is  one  result,  a 
deplorable  result,  of  the  action  of  those  laws  which  we  have 
to  study. 

[The  phrase  just  used — the  action  of  a  law — is  convenient 
on  account  of  its  brevity.     But  a  law  itself  does  The  action  of 
not  take  action,  it  merely  records  action.     When  ^  ^*^- 
we  speak  of  the  action  of  a  law,  what  we  mean  is  the  action 
of  those  causes,  the  results  of  which  are  described  by  the  law.] 

§  6.  Further,  the  laws  of  economics  as  of  other  sciences 
are  statements  as  to  the  effects  which  will  be  „    ^.  . 

Conditions  are 

produced  by  certain  causes,  not  absolutely,  but  assumed  in  all 
subject  to  the   condition  that   other  things   are  ^^^^°"^"s^- 
equal,  and  that  the  causes  are  able  to  work  out  their  effects 
undisturbed  \ 

"norma,"  a  term  which  is  nearly  equivalent  to  "law,"  and  might  perhaps 
with  advantage  be  substituted  for  it  in  scientific  discussions. 

1  There  is,  however,  no  reason  for  regarding  economics  as  a  hypothetical 
science  in  any  sense,  in  which  the  physical  sciences  are  not  also  hypothetical. 
Almost  every  scientific  doctrine,  when  carefully  and  formally  stated,  will  be 
found  to  contain  some  proviso  to  the  effect  that  other  things  are  equal :  the 
action  of  the  causes  in  question  is  supposed  to  be  isolated ;  certain  effects  are 
attributed  to  them,  but  only  on  the  hypothesis  that  no  cause  is  permitted  to 
enter  except  those  distinctly  allowed  for.  These  conditioning  clauses  must  be 
often  repeated  in  economics,  because  its  doctrines  are  apt  to  be  quoted  by 
persons  who  have  had  no  scientific  training,  and  who  perhaps  have  heard 
them  only  at  second  hand  and  without  their  context.  See  Principles  I.  vi.  6 
(Ed.  HI.). 


48  BOOK   I.   CH.   VI.   §  6. 

It  is  sometimes  said  that  physical  laws  are  more  universally 
true  and  less  changeable  than  economic  laws.  It  would  be 
better  to  say  that  an  economic  law  is  often  applicable  only 
to  a  very  narrow  range  of  circumstances  which  may  exist 
together  at  one  particular  place  and  time,  but  quickly  pass 
away.  When  they  are  gone,  the  law,  though  still  true  as  an 
abstract  proposition,  has  no  longer  any  practical  bearing; 
because  the  particular  set  of  causes  with  which  it  deals  are 
nowhere  to  be  found  acting  together  without  important  dis- 
turbance from  other  causes.  Though  economic  reasoning  is 
of  wide  application,  we  cannot  insist  too  urgently  that  every 
age  and  every  country  has  its  own  problems ;  and  that  every 
change  in  social  conditions  is  likely  to  require  a  new  develop- 
ment of  economic  doctrines. 

It  is  true  also  that  human  effort  may  alter  the  conditions 
under  which  people  live,  and  their  characters,  and  thus  may 
affect  the  economic  laws  that  will  be  valid  in  the  next 
generation.  It  may  for  instance  destroy  the  conditions  under 
which  the  most  helpless  of  our  match-box  makers  have  been 
formed ;  in  the  same  way  as  it  has  substituted  sheep  whose 
law  of  life  it  is  to  mature  early,  for  the  older  breeds  which 
did  not  attain  nearly  to  their  full  weight  till  their  third  year. 

The  "  normal "  conditions  with  which  economics  deals  are 

constantly  being  changed,  partly  through  the  un- 

-norm^'Ms      conscious   influence   of   general    social    progress, 

relative  to  partly  throusrh  conscious  and   deliberate  endea- 

place  and  time.    ^  ^       -,       •,  .-,         .  ,        i  •         i  i     ^ 

vour.  And  while  with  advancing  knowledge  we 
are  constantly  finding  that  economic  analysis  and  general 
reasoning  have  wider  and  wider  applications,  and  are  learning 
in  unexpected  ways  to  see  the  One  in  the  Many  and  the  Many 
in  the  One ;  we  are  also  getting  to  understand  more  fully  how 
every  age  and  every  country  has  its  own  problems,  and  how 
every  change  in  social  conditions  is  likely  to  require  a  new 
development  of  economic  doctrines. 


CHAPTER  VII. 

SUMMARY   AND   CONCLUSION. 

§  1.     Economics  has  then  as  its  purpose  firstly  to  acquire 
knowledge   for  its    own    sake,   and   secondly   to  Relation  of 
throw  light  on  practical  issues.     But  though  we  science  to 
are  right  before  entering  on  any  study  to  con-  practice. 
sider  carefully  what  are  its  uses,  we  should  not  plan  out  our 
work  with  direct  reference  to  them.      For  by  so  doing  we 
are  tempted  to  break   off  each  line  of  thought  as  soon  as 
it   ceases   to   have    immediate    bearing    on    that    particular 
aim  which  we  have  in  view  at  the  time :  the  direct  pursuit 
of  practical  aims  leads  us  to  group  together  bits  of  all  sorts 
of   knowledge,   which   have  no  connection  with  one  another 
except  for  the  immediate  purposes  of  the  moment ;  and  which 
throw  but  little  light  on  one  another.     Our  mental  energy  is 
spent  in  going  from  one  to  another;  nothing  is  thoroughly 
thought  out ;  no  real  progress  is  made. 

The  grouping,  therefore,  which  is  best  for  the  purposes  of 
science  is  that  which  collects  together  all  those  facts  and 
reasonings  which  are  similar  to  one  another  in  nature  :  so 
that  the  study  of  each  may  throw  light  on  its  neighbour. 
By  working  thus  for  a  long  time  at  one  set  of  considerations, 
we  get  gradually  nearer  to  those  fundamental  unities  which 
are  called  nature's  laws :  we  trace  their  action  first  singly, 
and  then  in  combination ;  and  thus  make  progress  slowly  but 
surely.  \  The  practical  uses  of  economic  studies  should  never 
be  out  of  the  mind  of  the  economist,  but  his  special  business 
is  to  study  and  interpret  facts  and  to  find  out  what  are  the 
effects  of  different  causes  acting  singly  and  in  combination.  \ 
M,  4      V 


50  BOOK  I.   CH.  VII.  §§  2,  3. 

§  2.  I  Economics  is  tlien  the  science  which  investigates 
Questions  to  be  JUJin's  action  in  the  ordinary  business  of  life.  )  It 
investigated,      pursues  the  inquiries  : — 

I  How  does  economic  freedom  tend,  so  far  as  its  influence 
/  reaches,  to  arrange  the  demand  for  wealth  and  its  production, 
/  diRf.T^'hntion  and  exchange?  What  organization  of  industry 
and  trade  does  economic  freedom  tend  to  bring  about ;  what 
forms  of  division  of  labour;  what  arrangements  of  the  money 
market,  of  wholesale  and  retail  dealing,  and  what  relations 
between  employer  and  employed?  How  does  it  tend  to 
adjust  values,  that  is,  the  prices  of  material  things  whether 
produced  on  the  spot  or  brought  from  a  distance,  rents  of 
all  kinds,  interest  on  capital  and  the  earnings  of  all  forms  of 
work,  including  that  of  undertaking  and  managing  business 
enterprises  ?  How  does  it  affect  the  course  of  foreign  trade  ? 
Subject  to  what  limitations  is  the  price  of  anything  a  measure 
of  its  real  utility  ?  What  increase  of  happiness  is  priind  facie 
likely  to  result  from  a  given  increase  in  the  wealth  of  any 
class  of  society  ?  How  far  is  the  industrial  efficiency  of  any 
class  impaired  by  the  insufficiency  of  its  income?  How  far 
would  an  increase  of  the  income  of  any  class,  if  once  effected, 
be  likely  to  sustain  itself  through  its  effects  in  increasing  their 
efficiency  and  earning  power  ? 

How  far  does,  as  a  matter  of  fact,  the  influence  of  economic 
freedom  reach  (or  how  far  has  it  reached  at  any  particular 
time)  in  any  place,  in  any  rank  of  society,  or  in  any  par- 
ticular branch  of  industry  ?  What  other  influences  are  most 
powerful  there ;  and  how  is  the  action  of  all  these  influences 
combined  ?  In  particular,  how  far  does  economic  freedom  tend 
of  its  own  action  to  build  up  combinations  and  monopolies, 
and  what  are  their  effects?  How  are  the  various  classes  of 
society  likely  to  be  affected  by  its  action  in  the  long  run;  what 
will  be  the  intermediate  effects  while  its  ultimate  results 
are  being  worked  out ;  and,  account  being  taken  of  the  time 
over  which  they  will  spread,  what  is  the  relative  importance 


SUMMARY   AND   CONCLUSION.  51 

of  these  two  classes  of  ultimate  and  intermediate  effects? 
What  will  be  the  incidence  of  any  system  of  taxes  ?  What 
burdens  will  it  impose  on  the  community,  and  what  revenue 
will  it  afford  to  the  State  ? 

^vThe  above  are  the  main  questions  with  which  economic 
science  has  to  deal  directly,  and  with  reference  to  which  its 
maiifwork  of  collecting  facts,  of  analysing  them  and  reasoning 
about  them  should  be  arranged.\  This  work  supplies  part  of 
the  material  which  conscience  and  common  sense  have  to  tujrn 
to  account  in  solving  practical  problems. 

§  3.     The   practical  issues   which,   though  lying   for   the 
greater  part  outside  the  range  of  economic  science,  yet  supply 
a  chief  motive  in  the  background  to  the  work  of    Practical 
the  economist,  vary  from  time  to  time,  and  from    issues  lying 
place  to  place,  even  more  than  do  the  economic    the  range  of 
facts  and  conditions  which  form  the  material  of    ^*=°"°"^**^^- 
his  studies.     The  following  problems  seem  to  be  of   special 
urgency  now  in  our  own  country  : — 

How  should  we  act  so  as  to  increase  the  good  and  diminish 
the  evil  influences  of  economic  freedom,  both  in  its  ultimate 
j:esults  and  in  the  course  of  its  progress?  If  the  first  are 
good  and  the  latter  evil,  but  those  who  suffer  the  evil,  do  not 
reap  the  good ;  how  far  is  it  right  that  they  should  suffer  for 
the  benefit  of  others  ? 

Taking  it  for  granted  that  a  more  equal  distribution  of  ■ 
wealth  is  to  be  desired,  how  far  would  this  justify  changes  in 
pthe  institutions  of  property,  or  limitations  of  free  enterprise] 
5ven  when  they  would  be  likely  to  diminish  the  aggregate  of  J 

realth?     In  other  words,  how  far  should  an  increase  in  the 

icome  of  the  poorer  classes  and  a  diminution  of  their  work 
aimed  at,   even  if  it  involved  some  lessening  of  national 

laterial  wealth?  How  far  could  this  be  done  without  in- 
justice, and  without  slackening  the  energies  of  the  leaders 
)f    progress?     How    ought    the    burdens    of   taxation  to  be 

listributed  among  the  different  classes  of  society  ? 


62  BOOK  I.   CH.  VII.   §  3. 

Ought  we  to  rest  content  with  the  existing  forms  of 
division  of  labour  ?  Is  it  necessary  that  large  numbers  of 
the  people  should  be  exclusively  occupied  with  work  that  has 
no  elevating  character?  Is  it  possible  to  educate  gradually 
among  the  great  mass  of  workers  a  new  capacity  for  the 
higher  kinds  of  work ;  and  in  particular  for  undertaking 
co-operatively  the  management  of  the  businesses  in  which 
they  are  themselves  employed  1 

i  What  are  the  proper  relations  of  individual  and  collective 
I  action  in  a  stage  of  civilization  such  as  ours  1  How  far  ought 
voluntary  association  in  its  various  forms,  old  and  new,  to 
be  left  to  supply  collective  action  for  those  purposes  for 
which  such  action  has  special  advantages?  What  business 
affairs  should  be  undertaken  by  society  itself  acting  through 
its  Government,  imperial  or  local?  'Have  we,  for  instance, 
carried  as  far  as  we  should  the  plan  oi  collective  ownership 
and  use  of  open  spaces,,  of  works  of  art,  of  the  means  of 
instruction  and  amusement,  as  well  as  of  those  material  re- 
quisites of  a  civilized  life,  the  supply  of  whi(^h  requires  united 
action,  such  as  gas  and  water,  and  railways  ?   - 

When  Government  does  not  itself  directly  intervene,  how 
far  should  it  allow  individuals  and  corporations  to  conduct 
their  own  affairs  as  they  please  ?  How  far  should  it  regulate 
the  management  of  railways  and  other  concerns  which  are 
to  some  extent  in  a  position  of  monopoly,  and  again  of  land 
and  other  things  the  quantity  of  which  cannot  be  increased 
by  man  ?  Is  it  necessary  to  retain  in  their  full  force  all  the 
existing  rights  of  property  ;  or  have  the  original  necessities 
for  which  they  were  meant  to  provide,  in  some  measure 
passed  away  ? 
^  Are  the  prevailing  methods  of  using  wealth  entirely 
I  justifiable?  What  scope  is  there  for  the  moral  pressure  of 
social  opinion  in  constraining  and  directing  individual  action 
in  those  economic  relations  in  which  the  rigidity  and  violence 


SUMMARY   AND   CONCLUSION.  53 

of  Goveriiuieiit  interference  would  be  likely  to  do  more  harm 
than  good  ? 

In  what  respect  do  the  duties  of  one  nation  to  another  . 
in   economic   matters   differ  from   those  of   members  of   the 
same  nation  to  one  another  ?  y 

Economics  is  thus  taken  to  mean  a  study  of  the  economic 
aspects  and  conditions  of  man's  political,  social  and  private 
life ;  but  more  especially  of  his  social  life.  (  The  aims  of  the 
study  are  to  gain  knowledge  for  its  own  sake,  ^^  ^  ^. 
and  to  obtain  guidance  in  the  practical  conduct  nance  of  social 
of  life,  and  especially  of  social  life/}  The  need  modern  eco- 
for  such  guidance  was  never  so  urgent  as  now ;  a  no"i>c  studies, 
later  generation  may  have  more  abundant  leisure  than  we  for 
researches  that  throw  light  on  obscure  points  in  abstract 
speculation,  or  in  the  history  of  past  times,  but  do  not  afford 
immediate  aid  in  present  difficulties. 

But  though  thus  largely  directed  by  practical  needs, 
economics  avoids  as  far  as  possible  the  discussion  of  those 
exigencies  of  party  organization,  and  those  diplomacies  of 
home  and  foreign  politics  of  which  the  statesman  is  bound  to 
take  account  in  deciding  what  measures  that  he  can  propose 
will  bring  him  nearest  to  the  end  that  he  desires  to  secure  for 
his  country.  It  aims  indeed  at  helping  him  to  determine  not 
only  what  that  end  should  be,  but  also  what  are  the  best 
methods  of  a  broad  policy  devoted  to  that  end.  But  it  shuns 
many  details  of  political  tactics,  which  the  practical  man  can- 
not ignore :  and  it  is  therefore  a  Science,  Pure  and  Applied,  j 
rather  than  a  Science  and  an  Art.  And  it  is  better  described 
as  Social  Economics,  or  as  Economics  simply,  than  as  Political  | 
Economy  \ 

1  This  chapter  is  reproduced  with  but  little  change,  except  the  omission  of 
a  summary  of  Book  I.,  from  rrincqdes  I.  vii. 


BOOK  11 

SOME   FUNDAMENTAL  NOTIONS. 
CHAPTER  I. 

INTRODUCTORY. 

§  1.  Since  Economics  is  the  study  of  man's  actions  in  the 
Difficulties  of  Ordinary  affairs  of  life,  it  needs  to  borrow  more 
definition  in  than  other  Sciences  do  from  the  experiences  and 
suggestions  of  those  who  are  not  professed 
students.  Its  reasonings  must  therefore  be  expressed  in 
language  that  is  intelligible  to  the  general  public;  it  must 
endeavour  to  conform  itself  to  the  familiar  terms  of  every- 
day life,  and,  so  far  as  possible,  to  use  them  as  they  are  com- 
monly used. 

But  unfortunately  in  common  use  almost  every  word  has 
many  shades  of  meaning,  and  therefore  needs  to  be  interpreted 
by  the  context:  this  difficulty,  however,  is  not  a  very  great 
one  in  practice;  provided  only  it  is  faced  boldly,  and  ex- 
planatory clauses  are  introduced  freely  whenever  they  are 
wanted. 

We  must  then  analyse  carefully  the  real  characteristics 
of  the  various  things  with  which  we  have  to  deal;  and  we 
shall  thus  generally  find  that  there  is  some  use  of  each  term 
which  has  distinctly  greater  claims  than  any  other  to  be 
called  its  leading  use,  on  the  ground  that  it  represents  a 
distinction  that  is  more  important  for  the  purposes  of  modern 


INTRODUCTORY.  55 

science  than  any  other.  This  may  be  laid  down  as  the  meaning 
to  be  given  to  the  term  whenever  nothing  to  the  contrary  is 
stated  or  implied  by  the  context.  When  the  term  is  wanted 
to  be  used  in  any  other  sense,  whether  broader  or  narrower, 
the  change  must  be  indicated;  and  a  formal  interpretation 
clause  must  be  supplied  if  there  is  the  slightest  danger  of  a 
misunderstanding  ^. 

1  As  Mill  says: — "The  ends  of  scientific  classification  are  best  answered 
when  the  objects  are  formed  into  groups  respecting  which  a  greater  number 
of  general  propositions  can  be  made,  and  those  propositions  more  important, 
than  those  which  could  be  made  respecting  any  other  groups  into  which  the 
same  things  could  be  distributed."  But  we  meet  at  starting  with  the  difficulty 
that  those  propositions  which  are  the  most  important  in  one  stage  of  economic 
development,  are  not  unhkely  to  be  among  the  least  important  in  another,  if 
indeed  they  apply  at  all.  Darwin  points  out  that  those  parts  of  the  structure 
which  determine  the  habits  of  life  and  the  general  place  of  each  being  in  the 
economy  of  nature,  are  as  a  rule  not  those  which  throw  most  light  on  its 
origin,  but  those  which  throw  least.  And  in  like  manner  those  properties  of 
an  economic  institution  which  play  the  most  important  part  in  fitting  it  for 
the  work  which  it  has  to  do  now,  are  for  that  very  reason  likely  to  be  in  a 
great  measure  of  recent  growth. 

But  on  the  other  hand  we  must  keep  constantly  in  mind  the  history  of  the 
terms  which  we  use.  For,  to  begin  with,  this  history  is  important  for  its 
own  sake ;  and  because  it  throws  side  lights  on  the  history  of  the  economic 
development  of  society.  And  further,  even  if  the  sole  purpose  of  our  study  of 
economics  were  to  obtain  knowledge  that  would  guide  us  in  the  attainment  of 
immediate  practical  ends,  we  should  yet  be  bound  to  keep  our  use  of  terms  as 
much  as  possible  in  harmony  with  the  traditions  of  the  past ;  in  order  that  we 
might  be  quick  to  perceive  the  indirect  hmts  and  the  subtle  and  subdued 
warnings,  which  the  experiences  of  our  ancestors  offer  for  our  instruction. 

The  divergence  from  an  ideally  perfect  system  of  classification  caused  by 
the  special  needs  and  difiiculties  of  economics,  is  discussed  in  Princii)les  II.  i. 


\ 


CHAPTER  II. 

§  1.     In  the  absence  of  any  term  in  common  use  to  re- 


Goods. 


present  all  desirable  things,  or  things  that  satisfy 
human  wants,  we  may  adopt  the  term  Goods  for 
tlmt  purpose.  ■  - 

yAlljA^ealth  consists  of  things  that  satisfy  wautfij-jdijcefitly 
or  indirectly.  All  wealth  therefore  consists  of  desirable 
things  ;  but  not  all  desirable  things  are  reckoned  as  wealth. 
The  affection  of  friends,  for  instance,  is  a  very  iniportsint--^ 
element  of  well-being,  but  it  is  not  ever  reckoned  as  wealth, 
except  by  a  poetic  licence.  ■  Let  us  then  begin  by  classifying 
desirable  things  or  Goods,  and  then  consider  which  of  them 
should  be  accounted  as  elements  of  wealth. 

Desirable  things  are  Material,  or  Personal  and  Immaterial. 
Classification  MATERIAL  Goods  consist  of  useful  material  things, 
of  goods.  aj^(j  'ofail  rights  to  hold,  or  use,  or  derive  benefits 

from  material  things,  or  to  receive  them  at  a  future  time\ 

A  man's  PERSOX^^Goods  fall  into  two  classes.  Under  the 
first  come  the  benefits  he  derives  from  other  persons,  such 
as  labour  dues  and  personal  services  of  all  kinds,  property 
in  slaves,  the  organization  of  his  business,  and  his  business 
connection  generally.  The  second  class  consists  of  his  own 
qugilities  and  faculties  for  action  and  for  enjoyment. 

1  Thus  they  uiclude  the  physical  gifts  of  nature,  land  and  water,  air  and 
climate;  the  products  of  agriculture,  mining,  fishing,  and  manufacture; 
buildings,  machinery,  and  implements ;  mortgages  and  other  bonds ;  shares 
in  public  and  private  companies,  all  kinds  of  monopolies,  patent-rights,  copy- 
rights ;  also  rights  of  way  and  other  rights  of  usage.  Lastly,  opportunities  of 
trarel,  access  to  good  scenery,  museums,  etc.  ought,  strictly  speaking,  to  be 
reckoned  under  this  head. 


WEALTH.  57 

The  former  of  these  two  classes,  together  with  all  Material 
goods,    may   be   described    as    external,    and   the   tatter  as 

INTERNAL  gOOds.  ~ 

Again,  Goods  may  be  transferable  or  non-transferable  ^ 

Those  Goods  are  free,  which  are  not  appropriated  and 
are  afforded  by  Nature  without  requiring  the  effort  of  man^. 

Exchangeable  Goods  are  all  those  transferable  Goods 
which  are  limited  in  quantity  and  not  free.  This  distinction 
is  however  not  very  important  practically,  because  there  are 
not  many  Goods  which  are  transferable,  but^eing  freCj^JieiY© 
na^g^cteigajKalije. 

"When  a  man's  wealth  is  spoken  of  simply,  and  without 
any  interpretation  clause  in  the  context,  it  is  to 
be  taken  to  consist  of  two  classes  of  Goods. 

In  the  first  class  are  those  Material  Goods  to  which  he 
has  (by  Law  or  Custom)  private  rights  oFproperty,  and  which 
are  therefore  transferable  and  exchangeable^. 

1  Among  the  latter  are  to  be  classed  tlie  whole  of  a  person's  (Internal 
Goods)  i.e.  his  qualities  and  faculties  for  action  and  enjoyment;  also  such  part 
of  his  business  connection  as  depends  on  personal  ti'ust  in  him,  and  cannot  be 
transferred  as  part  of  his  vendible  good  will ;  also  the  advantages  of  climate, 
light,  air,  and  his  privileges  of  citizenship  and  rights  and  opportunities  of 
making  use  of  public  property. 

2  The  land  in  its  original  state  was  a  free  gift  of  nature.  But  in  settled  coun- 
tries it  is  not  a  free  good  from  the  point  of  view  of  the  individual.  Wood  is 
still  free  in  some  Brazilian  forests :  the  fish  of  the  sea  are  free  generally :  but 
some  sea  fisheries  are  jealously  guarded  for  the  exclusive  use  of  members  of  a 
certain  nation,  and  may  be  classed  as  national  property.  Oyster  beds  that 
have  been  planted  by  man  are  not  free  in  any  sense ;  those  that  have  grown 
naturally  are  free  in  every  sense  if  they  are  not  appropriated ;  if  they  are 
private  property  they  are  still  free  gifts  from  the  point  of  view  of  the  nation, 
but  since  the  nation  has  allowed  its  rights  in  them  to  become  vested  in  indi- 
viduals they  are  not  free  from  the  point  of  view  of  the  individual,  and  the 
same  is  true  of  private  rights  of  fishing  in  many  rivers.  But  the  wheat  grown 
on  free  land  and  the  fish  caught  in  free  fisheries  are  not  free :  for  they  have 
been  acquired  by  labour. 

3  These  include  not  only  such  things  as  land  and  houses,  furniture  and 
machineiy,  and  other  material  things  which  may  be  in  his  single  private 
ownership,  but  also  any  shares  in  public  companies,  debenture  bonds,  mort- 
gages and  other  obligations  which  he  may  hold  from  others  to  pay  goods  to 
him.    On  the  other  hand,  the  debts  which  he  owes  to  others  may  be  regarded 


58  BOOK  II.  CH.  II.  §§  2,  3. 

In  the  second  class  are  those  of  his  Imiiia4^eiial  Goods 
which  are  External  to  him,  and  serve  directly  as  the  means  of 
enabling  him  to  acquire  Material  Goods  ^;  such,  for  instance, 
jas  the  good  will  of  his  business  or  professional  practice. 

This  use  of  the  tenn  Wealth  is  in  harmony  with  the 
usage  of  ordinary  life:  and,  at  the  same  time,  it  includes 
those  Goods,  and  only  those,  which  come  clearly  within  the 
scope  of  economic  science,  as  defined  in  Book  i.  For  it 
includes  all  those  things.  External  to  a  man,  which  (i)  belong 
to  him,  and  do  not  belong  equally  to  his  neighbours,  and 
therefore  are  distinctly  his;  and  (ii)  which  are  directly 
capable  of  a  money  measure, — a  measure  that  represents  on 
the  one  side  the  efforts  and  sacrifices  by  which  they  have 
been  called  into  existence,  and,  on  the  other,  the  wants  which 
they  satisfy. 

§  2.  A  broader  view  of  wealth  has  indeed  to  be  taken 
for  some  purposes;  but  then  recourse  must  be  had  to  a 
special  interpretation  clause,  to  prevent  confusion.  Thus,  for 
instance,  the  carpenter's  skill  is  as  direct  a  means  of  enabling 
him  to  satisfy  other  people's  material  wants,  and  therefore 
indirectly  his  own,  as  are  the  tools  in  his  work  basket ;  and 
therefore  it  is  convenient  to  have  a  term  which  will  include 
it  as  part  of  wealth  in  a  broader  use.  Pursuing  the  lines 
indicated  by  Adam  Smith,  and  followed  by  most  continental 
Personal  economists,   we  may  define  Personal  Wealth 

^^^  *  ■  so  as  to  include  all  those  energies,  faculties,  and 

habits  which  directly  contribute  to  making  people  industrially 

as  negative  wealth ;  and  they  must  be  subtracted  from  his  Gross  possessions 
before  his  true  Net  wealth  can  be  found.  It  is  perhaps  hardly  necessary  to 
say  specially  that  services  and  other  Goods,  which  pass  out  of  existence  in  the 
same  instant  that  they  come  into  it,  do  not  contribute  to  the  stock  of  wealth, 
and  may  therefore  be  left  out  of  our  account. 

1  But  it  excludes  all  his  own  personal  qualities  and  faculties,  even  those 
which  enable  him  to  earn  his  living.  They  were  indeed  included  by  Adam 
Smith  in  Personal  capital ;  and  there  are  some  purposes  for  which  it  is  best  to 
regard  them  as  part  of  Wealth.  But  whenever  wealth  is  used  in  this  broad 
sense,  special  notice  of  the  fact  should  be  taken  in  the  oontext. 


WEALTH.  59 

efficient ;  together  with  those  business  connections  and  associa- 
tions of  any  kind,  which  we  have  already  reckoned  as  part 
of  wealth  in  the  narrower  use  of  the  term.  Industrial 
faculties  have  a  claim  to  be  regarded  as  economic,  not  only 
on  account  of  their  importance  as  factors  in  the  production 
of  wealth,  but  because  their  value  is  as  a  rule  capable  of 
indirect  measurement. 

But  confusion  would  be  caused  by  using  the  term 
"wealth"  simply  when  we  desire  to  include  a  person's  indus- 
trial qualities.  For  this  purpose  it  will  be  best  to  use  the 
more  explicit  phrase  "material  and  personal  wealth."  "Wealth" 
simply  should  always  mean  external  wealth  only. 

§  3.  But  we  still  have  to  take  account  of  those  Material 
Goods  which  are  common  to  him  with  his  neighbours;  and 
which  therefore  it  would  be  a  needless  trouble  to  mention 
when  comparing  his  wealth  with  theirs;  though  they  may  be 
important  for  some  purposes,  and  especially  for  comparisons 
between  the  economic  conditions  of  distant  places  or  distant 
times  \ 

Many  of  these  things  are  CoiA^Q,Tj.yiE^GooT)S-,   i.e.  goods 
w:hich  are  not  in  private  ownersmp.     And  this     collective 
brings  us  to  consider  wealth  from  the  Social,  as     Goods, 
opposed  to  the  Individual  point  of  view. 

1  These  Goods  consist  of  the  benefits  which  he  derives  from  living  in  a 
certain  place  at  a  certain  time,  and  being  a  member  of  a  certain  state  or  com- 
munity ;  they  include  civil  and  military  security,  and  the  right  and  opportunity 
to  make  use  of  public  property  and  institutions  of  all  kinds,  such  as  roads, 
gaslight,  etc.,  and  rights  to  justice  or  to  a  free  education.  The  townsman  and 
the  countryman  have  each  of  them  for  nothing  many  advantages  which  the 
other  either  cannot  get  at  all,  or  can  get  only  at  great  expense.  Other  things 
being  equal,  one  person  has  more  real  wealth  in  its  broadest  sense  than 
another,  if  the  place  in  which  the  former  lives  has  a  better  climate,  better 
roads,  better  water,  more  wholesome  drainage,  and  cheaper  and  better  news- 
papers, and  places  of  amusement  and  instruction.  House-room,  food  and 
clothing,  which  would  bo  insufficient  in  a  cold  chmate,  may  be  abundant 
in  a  warm  climate:  on  the  other  hand,  that  warmth  which  lessens  men's 
physical  needs,  and  makes  them  rich  with  but  a  slight  provision  of  material 
wealth,  makes  them  poor  in  the  energy  that  procures  wealth. 


60  BOOK  II.    CH.  JI.    §  3. 

Let  us  then  look  at  those  elements  of  the  wealth  of  a 
nation  which  are  commonly  ignored  when  estimating  the 
wealth  of  the  individuals  composing  it.  The  most  obvious 
forms  of  such  wealth  are  public  material  property  of  all  kinds, 
such  as  roads  and  canals,  buildings  and  parks,  gasworks  and 
waterworks;  though  unfortunately  many  of  them  have  been 
secured  not  by  public  savings,  but  by  public  borrowings,  and 
there  is  the  heavy  "negative"  wealth  of  a  large  debt  to  be 
set  against  them. 

But  the  Thames  has  added  more  to  the  wealth  of  England 
than  all  its  canals,  and  perhaps  even  than  all  its  railroads. 
And  though  the  Thames  is  a  free  gift  of  nature,  except  in  so 
far  as  its  navigation  has  been  improved,  while  the  canal  is 
the  work  of  man,  we  ought  for  many  purposes  to  reckon  the 
Thames  a  part  of  England's  wealth  \ 

1  We  should  also,  in  accord  with  German  economists,  lay  stress  on  the 
non-material  elements  of  national  wealth.  Scientific  knowledge  indeed, 
wherever  discovered,  soon  becomes  the  property  of  the  whole  civilized  world, 
and  may  be  called  cosmopolitan  rather  than  specially  national  wealth.  The 
same  is  true  of  mechanical  inventions  and  of  many  other  improvements  in  the 
arts  of  production;  and  it  is  true  of  music.  But  those  kinds  of  literature 
which  lose  their  force  by  translation,  may  be  regarded  as  in  a  special  sense  the 
wealth  of  those  nations  in  whose  language  they  are  written.  And  the  organi- 
zation of  a  free  and  well-ordered  State  is  an  important  element  of  national 
wealth. 

But  National  wealth  includes  the  Individual  as  well  as  the  Collective  pro- 
perty of  its  members.  And  in  estimating  the  aggregate  sum  of  their  individual 
wealth,  we  may  save  some  trouble  by  omitting  all  debts  and  other  obligations 
due  to  one  member  of  a  nation  from  another.  For  instance,  so  far  as  the 
English  national  debt  and  the  bonds  of  an  English  railway  are  owned  within 
the  nation,  we  can  adopt  the  simple  plan  of  counting  the  railway  itself  as  part 
of  the  national  wealth,  and  neglecting  railway  and  Government  bonds  alto- 
gether. But  we  still  have  to  deduct  for  those  bonds  etc.  issued  by  the  EngUsh 
Government  or  by  private  Englishmen,  and  held  by  foreigners ;  and  to  add  for 
those  foreign  bonds  etc.  held  by  Englishmen. 

There  are  many  things  which  lie  across  the  lines  of  division  indicated  in 
the  text,  partly  on  one  side,  and  partly  on  the  other.  Some  of  these  cases 
are  discussed  in  Pnncixtles  II.  ii.  with  reference  especially  to  the  distinctions 
between  Transferable  and  Non-transferable  Goods;  to  personal  advantages 
that  are  and  are  not  to  be  classed  as  Personal  Wealth ;  and  to  the  relations  in 
which  the  privileges,  which  individuals  derive  from  their  credit  and  business 
connections,  stand  to  National  Wealth. 


CHAPTER  III. 

PRODUCTION.      CONSUMPTION.      LABOUR.      NECESSARIES. 

§  1.     Man  Qannot  create  material   tilings.     In  the  mental 
and   moral   world   indeed  he  may  produce  new  „ 

•^     ^  Man  can  pro- 

ideas ;  but  when  he  is  said  to  produce  material  duce  only 
things,  he  really  only  produces  utilities ;  or  in  "*^  ities^,.- 
other  words,  his  efforts  and  sacrifices  result  in  changing  the 
form  or  arrangement  of  matter  to  adapt  it  better  for  the 
satisfaction  of  wants.  All  that  he  can  do  in  the  physical 
world  is  either  to  re-adjust  matter  so  as  to  make  it  more 
useful,  as  when  he  makes  a  log  of  wood  into  a  table ;  or  to 
put  it  in  the  way  of  being  made  more  useful  by  nature,  as 
when  he  puts  seed  where  the  forces  of  nature  will  make  it 
burst  out  into  life\ 

Consumption  may  be    regarded   as   negative   pj^oductigii. 
Just  as  man  can  produce  only  utilities,  so  he  can  ^^^  ^^^  ^^^_ 
consume   nothing   more.      He    can   produce   ser-  sume  only 
vices  and  other  immaterial  products,  and  he  can 
consume  them.     But  as  his  production  of  material  products  is 

^  It  is  sometimes  said  that  traders  do  not  produce :  that  while  the  cabinet- 
maker produces  furniture,  the  furniture-dealer  merely  sells  what  is  already- 
produced.  But  there  is  no  scientific  foundation  for  this  distinction.  They 
both  produce  utihties,  and  neither  of  them  can  do  more :  the  furniture-dealer 
moves  and  re-arranges  matters  so  as  to  make  it  more  serviceable  than  it  was 
before,  and  the  carpenter  does  nothing  more.  The  sailor  or  the  railway-man 
who  carries  coal  above  ground  produces  it,  just  as  much  as  the  miner  who 
carries  it  underground ;  the  dealer  in  fish  helps  to  move  on  fish  from  where  it 
is  of  comparatively  little  use  to  where  it  is  of  greater  use,  and  the  fisherman 
does  no  more.  It  is  true  that  if  there  are  more  traders  than  are  necessary 
there  is  waste.  But  there  is  also  waste  if  there  are  two  men  to  a  plough 
which  can  be  well  worked  by  one  man;  in  both  cases  all  those  who  are  at 
work,  produce,  though  they  may  produce  but  little. 


62  BOOK  II.    CH.  III.   §§  1 — 3. 

Ireally  nothing  more  than  a  rearrangement  of  matter  which 
I  gives  it  new  utilities;  so  his  consumption  of  them  is  nothing 
I  more    than    a   disarrangement    of    matter,    which    lessens    or 
I  destroys  its  utilities.     Often  indeed  when  he  is  said  to  con- 
sume things,  he  does  nothing  more  than  to  hold  them  for  his 
use,    while,    as  Senior   says,    they    "are   destroyed   by  those 
numerous  gradual   agents   which   we   call  collectively   time." 
As  the  "producer"  of  wheat  is  he  who  puts  seed  where  Nature 
will  make  it  grow,  so  the  "consumer"  of  pictures,  of  curtains 
and  even  of  a  house  or  a  yacht  does  little  to  wear  them  out 
himself;  but  he  holds  them  and  uses  them  while  time  wastes 
them. 

And  here  we  may  note  that  Goods  may  be  divided  into 
Consumption  Goods  \  which  satisfy  wants  directly, 

Consumption  -  '  "^  *' 

and  production  such  as  food,  clothes,  etc. ;  and  Prodttctt on  Goods 
^°°  ^*  which  satisfy  wants,  not  directly,  but  indirectly 

by  contributing  towards  the  production  of  consumption  goods. 
The  latter  are  sometimes  called  Intermediate  Goods. 

§  2.     All  labour  is  directed  towards  producing  some  effect. 

For  though  some  exertions  are  taken  merely  for 

labour  is  in        their  own  sake,  as  when  a  game  is  played  for 

sonie  sense        amuscmeut,  thcv  are  not  counted  as  labour.  \  We 

productive.  '  ./  .  V  . 

may    define    ljU^our  as  any    exertion    of    mind 


or  body  undergone  partly  or  wholly  with  a  view  to  some 
good  other  than  the  pleasure  derived  directly  from  the 
workX  And  if  we  had  to  make  a  fresh  start  it  would  be 
best  to  regard  all  labour  as  productive  except  that  which 
failed  to  promote  the  aim  towards  which  it  was  directed, 
and  so  produced  no  utility.  But  both  business  men  and 
economists  have  used  the  word  Productive  in  narrower  senses, 
without  however  a-ny  general  agreement  as  to  details.  And  on 
the  whole  it  seems  best  to  decide  that,  when  used  alone  it  will 

1  The  line  of  division  between  the  two  classes  is  however  vague,  is  drawn 
in  different  places  by  different  writers,  and  can  seldom  be  used  safely  without 
special  explanation.  For  instance  wheat  is  sometimes  placed  in  the  first  class 
as  food,  sometimes  in  the  second  as  raw  material  of  food. 


CONSUMPTION.      LABOUR.  63 

Tiieaii  Productive  of  the  oneans  of  jrroduction,  and  of  lasting 
sources  of  enjoyment^.  And  if  ever  we  want  to  use  it  in  a 
different  sense  we  must  say  so :  for  instance  we  may  speak  of 
labour  as  productive  of  necessaries,  of  iriatericd  wealth,  <&c. 

Productive  consumption  is  commonly  defined  as  the  use  of 
wealth  in  the  production  of  further  wealth.  But  Productive 
this  definition  is  ambiijuous.  For  it  is  sometimes  consumption, 
taken  to  include  everything  that  is  actually  consumed  by 
people  engaged  in  productive  work,  even  though  it  may  not 
conduce  at  all  to  their  efiiciency  as  workers.  But  Productive 
consuTnption,  strictly  so  called,  must  be  taken  to  include  only 
such  consumption  by  productive  workers  as  is  necessary  for 
their  work;  under  which  head  may  be  reckoned  the  necessary 
consumption  of  children,  who  will  hereafter  be  productive 
workers,  as  well  as  that  of  adults  during  sickness. 

§  3.  This  brings  us  to  consider  the  term  Necessaries.\ 
It  is  common  to  divide  wealth  intovNecessaries,  Com|prts  / 
and  Lij^fjir^'ps ;  the  first  class  including  all  things  required  to 
meet  wants  which  jnust  be  satisfied,  while  the  latter  consist 
of  things  that  meet  wants  of  a  less  urgent  character.  But 
here  again  there  is  a  troublesome  ambiguity.  When  we  say 
that  a  want  must  be  satisfied,  what  are  the  consequences 
which  we  have  in  view  if  it  is  not  satisfied?  Do  they  include 
death?  Or  do  they  extend  only  to  the  loss  of  strength  and 
vigour?  In  other  words,  are  Necessaries  the  things  which  are 
necessary  for  life,  or  those  which  are  necessary  for  efficiency? 

The  older  use  of  the  term  Necessaries  was  limited  to  those 

1  No  doubt  the  dividing  line  between  permanent  and  ephemeral  sources  of 
enjoyment  cannot  be  drawn  rigidly.  But  this  is  a  difficulty  which  exists  in 
the  nature  of  things  and  cannot  be  evaded  by  any  device  of  words.  We  can 
speak  of  an  increase  of  taU  men  relatively  to  short,  without  deciding  whether 
all  those  above  five  feet  nine  inches  are  to  be  classed  as  tall,  or  only  those 
above  five  feet  ten.  And  we  can  speak  of  the  increase  of  productive  labour 
at  the  expense  of  unproductive  without  fixing  on  any  rigid,  and  therefore 
arbitrary  line  of  division  between  them.  If  such  an  artificial  line  is  required 
for  any  particular  purpose,  it  must  he  drawn  explicitly  for  the  occasion.  But 
in  actual  fact  such  occasions  seldom  or  never  occur. 


64  BOOK  II.   CH.  III.   §  3. 

things  which  were  sufficient  to  enable  the  labourers,  taken  one 

with  another,   to  support  themselves  and  their 

for  exlstemTe      families.     But  we  now  recognize  that  a  distinction 

andforeffi-      jniust  be  made  between  the  necessaries  for  effi- 
ciency. /    .  .      p  -"^  ^-7'-  ■'"  -^ 
aency  and  the  necessaries  for  existence ;  and  that 


there  is  for  each  rank  of  industry,  at  any  time  and  place, 
a  more  or  less  clearly  defined  income  which  is  necessary 
for  merely  sustaining  its  members;  while  there  is  another 
and  larger  income  which  is  necessary  for  keeping  it  in  full 
efficiency. 

Thus  in  the  South  of  England  population  has  increased 
during  the  present  century  at  a  fair  rate,  allowance  being 
made  for  migration.  But  the  efficiency  of  labour,  which  in 
earlier  times  was  as  high  as  that  in  the  North  of  England, 
has  sunk  relatively  to  the  North;  so  that  the  low-waged 
labour  of  the  South  is  often  dearer  than  the  more  highly  paid 
labour  of  the  North.  This  indicates  that  the  labourers  in 
the  South  have  had  the  bare  necessaries  for  existence  and 
the  increase  of  numbers,  but  they  have  not  had  the  necessaries 
for  efficiency. 

It  may  be  true  that  the  wages  of  any  industrial  class 
might  have  sufficed  to  maintain  a  higher  efficiency,  if  they 
had  been  spent  with  perfect  wisdom.  But  every  estimate  of 
necessaries  must  be  relative  to  a  given  place  and  time;  and 
unless  there  be  a  special  interpretation  clause  to  the  contrary, 
it  may  be  assumed  that  the  wages  will  be  spent  v/ith  just 
that  amount  of  wisdom,  forethought,  and  unselfishness,  which 
prevails  in  fact  among  the  industrial  class  under  discussion. 
With  this  understanding  we  may  say  that  the  income  of  any 
class  in  the  ranks  of  industry  is  below  its  necessary  level, 
when  any  increase  in  their  income  would  in  the  course  of 
time  produce  a  more  than  proportionate  increase  in  their 
efficiency.  Consumption  may  be  economized  by  a  change  of 
habits ;  but  any  stinting  of  necessaries  is  wasteful. 

The  necessaries  for  the  efficiency  of  an  ordinary  agricul- 


NECESSARIES.  65 

tural  or  of  an  unskilled  town  labourer  and  his  family,  in 
England  in  this  generation,  may  be  said  to  consist  of  a  well- 
drained  dwelling  with  several  rooms,  warm  clothing,  with 
some  changes  of  under-clothing,  pure  water,  a  plentiful  supply 
of  cereal  food,  with  a  moderate  allowance  of  meat  and  milk,  and 
a  little  tea,  tfec,  some  education  and  some  recreation,  and  lastly, 
sufficient  freedom  for  his  wife  from  other  work  to  enable  her 
to  perform  properly  her  maternal  and  her  household  duties. 
If  in  any  district  unskilled  labour  is  deprived  of  any  of  these 
things,  its  efficiency  will  suffer  in  the  same  way  as  that  of  a 
horse  that  is  not  properly  tended,  or  a  steam-engine  that  has 
an  inadequate  supply  of  coals.  All  consumption  up  to  this 
limit  is  strictly  productive  consumption:  any  stinting  of  this 
consumption  is  not  economical,  but  wasteful. 

In  addition,  perhaps,  some  consumption  of  alcohol  and 
tobaccg,  and  some  indulgence  in  fashioimWe  dress  conventional 
are  in  many  places  so  habitual,  that  they  may  be  necessaries, 
said  to  be  conventionally  necessary,  since  in  order  to  obtain 
them,  the  average  man  and  woma-n  will  sacrifice  some  things 
which  are  necessary  for  efficiency.  ;  Their  wages  are  therefore 
less  than  are  practically  necessary  for  efficiency,  unless  they 
provide  not  only  for  what  is  strictly  necessary  consumption, 
but  include  also  a  certain  amount  of  conventional  necessaries'. 

1  The  consumption  of  Conventional  Necessaries  by  productive  workers  is 
commonly  classed  as  productive  consumption ;  but  strictly  speaking  it  ought 
not  to  be ;  and  in  critical  passages  a  special  interpretation  clause  should  be 
added  to  say  whether  or  not  they  are  included. 

Principles  II.  in.  contains  some  notes  on  the  history  of  the  terms  defined 
in  this  chapter,  and  discusses  some  difficult  questions  connected  with  the  scope 
of  necessaries. 


M. 


CHAPTER  IV. 

CAPITAL.      INCOME. 

§  1.  We  have  already  divided  wealth  into  that  which 
satisfies  wants  diii^tly,  and  that  which  satisfies  them  in- 
directly by  providing  the  means  of  producing  further  wealth. 
"We  have  now  to  consider  a  distinction  of  a  somewhat  similar 
character  between  the  wealth  that  is  and  that  which  is  not 
capital.  '^^^ — 

tJnfortunately  the  term  Capital  has  many  uses  both  in 
the  language  of  the  market-place  and  in  the  writings  of 
economists.  There  is  no  other  part  of  economics  in  which 
the  temptation  is  so  strong  to  invent  a  completely  new  set  of 
technical  terms;  each  of  which  should  have  a  precise  and 
fixed  meaning,  while  between  them  they  should  cover  all  the 
various  significations  which  are  given  to  the  one  term  capital 
in  the  language  of  the  market-place.  But  this  would  throw 
the  science  out  of  touch  with  real  life;  and  academic  exact- 
ness of  logical  form  would  be  obtained  at  the  cost  of  grave 
substantial  injury.  We  must  therefore  take  the  ordinary 
usages  of  the  term  as  the  foundation  of  our  account;  and  add 
such  general  explanations,  and  even  in  some  cases  such  special 
interpretation  clauses,  as  are  required  to  give  to  our  use  of 
the  term  some  measure  of  clearness  and  precision. 
'VAdam  Smith  said  that  a  person's  capital  is  that  part  of 
Capital  yields  his  stock  from  which  he  expects  to  derive  an 
income.  income.     Its  most  conspicuous  elements  are  such 

things  as  the  factory  and  the  business  plant  of  a  manufacturer; 
that  is,  his  machinery,  his  raw  material,  any  food,  clothing, 
and  house-room  tliat  he  may  hoIH  for  the  use  of  his  employes, 


CAPITAL.      INCOME.  67 

and  the  goodwill  of  his  business.  These  are  things  from  which 
their  owner  expects  to  derive  an  income  in  the  special  form 
of  money  ;    and  this  may  be  called  his   Trade 

"^  '  .  ''  -  -      -         -     Trade  capital. 

Capital.  But  or  course  we  must  add  to  the 
things  in  his  possession  those  to  which  he  has  a  right  and 
from  which  he  is  drawing  income :  including  loans  which  he 
has  made  on  mortgage  or  in  other  ways,  and  all  the  command 
over  capital  which  he  may  hold  under  the  complex  forms  of 
the  modern  "money-market."  On  the  other  hand  debts  owed 
by  him  must  be  deducted  from  his  capital. 

This  may  be  taken  as  the  standard  use  of  Capital  for  the 
purposes  of  business  life.  But  a  broader  use  is  needed  when 
we  come  to  regard  capital  from  the  point  of  view,  not  of  the 
individual,  but  of  Society  as  a  whole ;  or,  in  other  words,  when 
we  seek  for  a  definition  of  capital  in  general,  or  Social 
Capital  ^ 

1  For  this  purpose  the  ordinary  business  use  of  the  term  Capital  is  un- 
suited.  For  instance  it  compels  us  to  regard  as  capital  the  yachts,  but  not  the 
carriage,  belonging  to  a  yacht  builder.  If  therefore  he  had  been  hiring  a 
carriage  by  the  year,  and  instead  of  continuing  to  do  so,  sold  a  yacht  to  a 
carriage  builder  ^vho  had  been  hiring  it,  and  bought  a  carriage  for  his  own 
use ;  the  result  would  be  that  the  total  stock  of  capital  in  the  country  would 
be  diminished  by  a  yacht  and  a  carriage.  And  this,  though  nothing  had  been 
destroyed;  and  though  there  remained  the  same  products  of  saving,  them- 
selves productive  of  as  great  benefits  to  the  individuals  concerned  and  to  the 
community  as  before,  and  probably  even  of  greater  benefits.  Nor  can  we 
avail  ourselves  here  of  the  notion  that  capital  is  distinguished  from  other 
forms  of  wealth  by  its  superior  power  of  giving  employment  to  labour.  For 
fact,  when  yachts  and  carriages  are  in  the  hands  of  dealers  and  are  thus 
)unted  as  capital,  less  employment  is  given  to  labour  by  a  given  amount  of 
yachting  or  carriage  driving  than  when  the  yachts  and  carriages  are  in  private 
lands  and  are  not  counted  as  capital. 

It  must  however  be  admitted  that  some  economists  have  given  little  weight 
such  considerations  as  these,  and  have  shown  a  tendency  towards  this 
larrow  use  of  Capital  even  in  discussing  broad  problems.  This  has  especially 
sen  the  case  with  those  writers  who  have  given  their  chief  attention  to  the 
organized  conflicts  between  employers  and  employed.  For  a  manufacturer's 
leaUngs  with  those  who  work  in  his  factory  are  often  different  in  substance 
id  in  tone  from  those  with  his  private  coachman  or  gardener.  This  point 
las  been  emphasized  by  Karl  Marx  and  his  followers,  who  have  avowedly 
le  the  definition  of  capital  turn  on  it. 

5—2 


68  BOOK  II.  CH.  IV.  §§  2,   8. 

§  2.  The  chief  concern  of  the  economist  with  capital  in 
Social  ca  itai  g®^®^^!  ^r  sociaj  capital,  is  when  he  is  considering 
is  wealth  the  way  in  which  the  three  agents  of  production, 

income^as  ^  l^l^  (that  is,  natural  agents),  labour  and  capital, 
commonly  contribute  to  producing  the  national  income  (or 
the  National  Dividend,  as  it  will  be  called  later 
on);  and  the  way  in  which  this  is  distributed  between  the 
three  agents. 

Now  there  is  a  tacit,  but  thorough  agreement  among  all 
writers  on  economics,  to  treat  this  income  in  its  broad  out- 
lines only,  and  not  to  trouble  about  petty  details.  So  far  as 
scientific  considerations  go,  we  should  be  quite  at  liberty  to 
count  as  part  of  that  income  all  the  income  of  benefit  that 
everyone  derives  from  the  use  of  his  own  clothes,  furniture, 
&c.  If  we  did  that,  we  should  need  to  regard  everyone  to  this 
extent  as  a  capitalist;  and  to  credit  him  under  this  head  with 
the  share  of  the  total  national  income  which  corresponds  to 
the  use  value  of  his  own  goods.  But  in  ordinary  life  no  one 
ever  thinks  of  doing  this. 

The  ordinary  practice  of  life,  as  exemplified  in  the  rules  of 
the  income  tax  commissioners,  is  governed  by  the  same  con- 
siderations as  that  of  economists  in  this  matter.  For  the 
purposes  of  both,  it  is  expedient  to  count  in  everything  which 
is  commonly  regarded  as  a  means  of  income  and  treated  in  a 
business  fashion ;  even  though  it  may  happen,  like  a  dwelling- 
house  inhabited  by  its  owner,  to  yield  its  income  of  comfort 
directly :  and  this  partly  because  of  its  intrinsic  importance, 
and  partly  because  the  real  income  accruing  from  it  can  easily 
be  separated  ofi"  and  estimated. 

In  all  discussions  of  Distribution  therefore,  in  the  present 
treatise,  capital  (regarded  from  the  social  point  of  view)  will 
be  taken  to  consist  of  those  kinds  of  wealth,  other  than  the 
free  gifts  of  nature,  which  yield  income  that  is  generally 
reckoned  as  such  in  common  discourse  :  together  with  similar 
things  in  public  ownership,  such  as  government  factories. 


CAPITAL.      INCOME.  69 

Thus  it  will  include  all  things  held  for  trade  purposes, 
whether  machinery,  raw  material  or  finished  goods ;  theatres 
and  hotels,  home  farms  and  houses:  but  not  furniture  or 
clothes  owned  by  those  who  use  them.  For  the  former  are 
and  the  latter  are  not  commonly  regarded  as  yielding  income 
by  the  world  at  large,  as  is  shown  by  the  practice  of  the 
income  tax  commissioners. 

It  will  be  found  that  nearly  every  broad  proposition  which 
is  commonly  made  as  to  the  relations  between  national  or 
social  well-being  and  national  or  social  capital  is  true  of 
capital  thus  defined. 

There  remain  some  minor  points  to  be  noticed  firstly  in 
relation  to  Capital,  and  secondly  in  relation  to  Income. 

§  3.  We  may  follow  Mill  in  distinguishing  circulating 
cAPTjAT-  "which  fulfils  the  whole  of  its  office  in      _.      ,    "T" 

^--*'****^  _  ...  Circulating 

the   production  in   which   it   is   engaged,   by   a     and  Fixed 
single  use,"  from  fixed  capital   "which  exists      *^^p**^  • 
in  a  durable  shape,  and  the  return  to  which  is  spread  over  a 
period  of  corresponding  duration." 

Sometimes  again  we  have  to  distinguish  certain  kinds  of 
capital  as  specialized  because  having  been  de-      specialized 
signed  for  use  in  one  trade  they  cannot  easily  be     capital, 
diverted  to  another. 
/     Consumption    capital   consists   of    Goods   in   a   form   to  \ 

(satisfy    wants    directly;    that   is,    Goods    which  consumption      ' 
afford  a  direct  sustenance  to  the  workers,  such  as  capital.  j 

food,  clothes,  house-room,  &c.  i 

j^uxiLiARY  CAPWrL' is  SO  Called  because  it  consists  of  all 
thejGoods  Jhat  aid  {labour /in  production.     Under     Auxiliary 
this   head    come  tools,   machines,   factories,  rail-      capital, 
ways,  docks,  ships,  &g.;  and  raw  materials  of  all  kinds  \ 

1  Mill  and  others  have  used  Fixed  capital  sometimes  in  the  sense  that  we 

have  retained  for  it,  sometimes  in  the  senses  that  we  have  given  to  Specialized 

■L^    and  to  Auxiliary  capital.    But  there  is  much  Fixed  capital  which  is  not  Spe- 


70  BOOK  II.  CH.  IV.  §§  3,  4. 

We  have  already  defined  Personal  wealth  to  consist  firstly 
Personal  ^^  those  energies,  faculties  and  habits  which 
capital.  directly  contribute  to  making  people  industrially 

efiicient,  and  secondly  of  their  business  connections  and 
associations  of  every  kind.  All  these  are  productive;  and 
therefore  if  they  are  to  be  recko^ied  as  wealth  at  all,  they  are 
also  to  be  reckoned  as  capital,  '^^^hus  Personal  wealth  and 
Personal  capital  are  convertible  ;\and  it  seems  best  to  follow 
here  the  same  course  as  in  the  case  of  wealth,  and  for  the 
same  reasons.  That  is,  it  is  best  to  assume  that  the  term 
"capital"  when  taken  alone  includes  none  but  external  goods; 
but  yet  to  raise  no  objection  to  an  occasional  broad  use  of  the 
term  in  which  it  is  explicitly  stated  to  include  Personal 
capitaP. 

many  different  trades :  while  materials  of  manufacture  and  some  other  kinds 
of  Circulating  capital  are  Specialized.  Again  much  Fixed  capital  is  also  Con- 
sumption capital,  as  for  instance  workmen's  cottages. 

1  The  difficulties  connected  with  the  definition  of  Capital  are  not  suitable 
for  full  discussion  in  the  present  treatise,  for  which  reference  must  be  made  to 
the  corresponding  chapter  of  the  Principles  (Ed.  in.).  But  a  few  remarks  on 
the  subject  here  may  be  of  interest  to  some  readers. 

The  chief  demand  for  capital  in  general  arises  from  its  productiveness, 
from  the  services  which  it  renders,  for  instance,  in  enabling  wool  to  be  spun 
and  woven  more  easily  than  by  unaided  hand,  or  in  causing  water  to  flow 
freely  wherever  it  is  wanted  instead  of  being  carried  laboriously  in  pails ;  (though 
there  are  other  services  rendered  by  it,  as  for  instance  when  it  is  lent  to  a 
spendthrift,  which  cannot  easily  be  brought  under  this  head).  And  on  the  other 
hand  the  supply  of  capital  is  controlled  by  the  fact  that  in  order  to  accumulate 
it,  men  must  Q.ct prospectively:  they  must  "wait"  and  "save",  they  must 
sacrifice  the  present  to  the  future.  And,  as  we  shall  see,  the  exchange  value 
of  the  services  rendered  by  capital  is  governed  in  the  long  run  by  the  pressure 
of  the  eagerness  of  demand  against  the  sluggishness  of  supply.  These  two 
qualities  of  productiveness  and  prospectiveness  belong  indeed  to  some  extent 
to  every  form  of  wealth ;  but  they  have  been  made  prominent,  though  in  un- 
equal degrees,  in  nearly  all  definitions  of  capital. 

Some  writers  have  tried  to  take  their  stand  definitely  on  the  notion  of 
prospectiveness,  and  to  regard  capital  as  a  store  of  things  the  result  of  human 
efforts  and  sacrifices,  devoted  mainly  to  securing  benefits  in  the  future  rather 
than  in  the  present ;  but  they  have  found  themselves  on  an  inclined  plane,  and 
have  not  reached  a  stable  resting-place  till  they  have  included  all  accumulated 
wealth  as  capital. 

In  order  to  avoid  this  difficulty,  most  of  the  attempts  to  define  capital  from 


CAPITAL.      INCOME.  71 

§  4.  To  pass  to  Income.  If  a  person  is  engaged  in  business, 
he  is  sure  to  have  to  incur  certain  outgoings  for  raw  material, 

a  purely  economic  point  of  view,  whether  in  England  or  other  countries,  have 
turned  on  its  productivity :  and  have  regarded  social  capital  as  a  means  for 
acquisition  [Enoerhshapital),  or  as  a  supply  of  the  requisites  of  production 
{Productions-mittel-Vorrath).  But  this  general  notion  has  been  treated  in 
different  ways. 

According  to  the  older  English  traditions  capital  consists  of  those  things 
which  aid  or  support  labour  in  production.  But,  with  some  inconsistency,  this 
has  often  been  taken  to  include  all  the  things  which  employers  directly  or  in- 
directly provide  in  payment  for  the  work  of  their  employees —  Wage  capital 
or  Remuneratory  capital,  as  it  is  called;  but  yet  not  to  include  any  of  the 
things  needed  for  their  own  support,  or  that  of  architects,  engineers,  and 
other  professional  men.  To  complete  this  notion  of  capital  we  should  include 
the  necessaries  for  efficiency  of  all  classes  of  workers;  and  ought,  strictly 
speaking,  to  exclude  the  luxuries  of  the  manual  labour  classes  as  well  as  of 
other  workers.  But  if  it  had  been  pushed  to  this  logical  conclusion,  it  would 
not  have  played  the  prominent  part  which  it  did  in  the  discussion  of  the  rela- 
tions of  employers  and  employed  in  the  first  half  of  the  century.  [It  may  be 
noticed,  in  passing,  that  a  desire  to  keep  in  close  touch  with  English  traditions 
caused  the  present  writer  to  seek  to  develop  the  notion  of  capital  in  this  direc- 
tion, in  earlier  editions.  But  further  consideration  seems  to  show  that,  for 
the  reasons  stated  in  the  text,  the  time  has  come  for  a  bolder  departure.] 

In  other  countries  however,  and  especially  in  Germany  and  Austria,  there 
has  been  some  tendency  to  confine  capital  (from  the  social  point  of  view)  to 
that  which  English  writers  have  called  Auxiliary  capital,  and  which  is  now 
sometimes  called  Instrumental  capital.  It  is  argued  that  in  order  to  keep 
clear  the  contrast  between  production  and  consumption,  nothing  which  enters 
directly  into  consumption  should  be  regarded  as  a  means  to  production.  But 
there  appears  no  good  reason  why  a  thing  should  not  be  regarded  in  a  twofold 
capacity,  if  it  be  found  convenient  to  do  so.  It  is  further  contended  that 
those  things  which  render  their  services  to  man  not  directly,  but  through  the 
part  which  they  play  in  preparing  other  things  for  his  use,  form  a  compact 
class ;  because  their  value  is  derived  from  that  of  the  things  which  they  help 
to  produce.  There  is  much  to  be  said  for  having  a  name  for  this  group.  But 
there  is  room  for  doubt  whether  capital  is  a  good  name  for  it ;  and  also  for 
doubt  whether  the  group  is  as  compact  as  it  appears  at  first  sight. 

These  divergencies  are  explained  by  the  fact  that  the  notion  of  social 
capital  enters  into  many  veins  of  economic  thought ;  and  whatever  definition 
a  writer  takes  at  starting  he  finds  that  the  various  elements  of  which  capital 
is  composed  differ  more  or  less  from  one  another  in  the  way  in  which  they 
enter  into  the  different  problems  with  which  he  has  successively  to  deal,  and 
he  is  compelled  to  supplement  his  standard  definition  by  an  explanation  of 
the  bearing  of  each  several  element  of  capital  on  the  point  at  issue.  Thus  the 
divergence  at  starting  turns  out  to  be  a  less  evil  than  it  seemed.  For  ulti- 
mately there  is  a  general  convergence;  and  the  reader  is  brought  to  very 
much  the  same  conclusion  by  whatever  route  he  travels,  though  it  may  some- 


72  BOOK  II.  CH.  IV.  §§  4,  5. 

the  hire  of  labour  &c.     And,  in  that  case,  his  true  or  Net 

Income  is  found  by  deductina^  from  his  across  in- 
Net  Income.  ;  .        -^  ,         ,     ,  . 

come  the  outgoings  that  belong  to  its  production. 

Now  anything  which  a  person  does  for  which  he  is  paid 
directly  or  indirectly  in  money,  helps  to  swell  his  money 
income;  while  no  services  that  hie  performs  for  himself  are 
reckoned  as  adding  to  his  nominal  income,  though  they  may 
be  a  very  important  part  of  his  total  real  income  if  they  are 
of  a  kind  which  people  commonly  pay  for  having  done  for 
them.\.  Thus  a  woman  who  makes  her  own  clothes  or  a  man 
who  digs  in  his  own  garden  or  repairs  his  own  house,  is 
earning  income  just  as  would  the  dressmaker,  gardener  or 
carpenter  who  might  be  hired  to  do  the  workX 

It  would  be  a  great  convenience  if  there  were  two  words 
available:  one  to  represent  a  person's  total  income  and  an- 
other his  money  income,  i.e.  that  part  of  his  total  income 
which  comes  to  him  in  the  form  of  money.  For  scientific  pur- 
poses it  would  be  best  that  the  word  iiijpqme  when  occurring 
alone  should  always  mean  total  real  income.X  But  as  this  plan 
is  inconsistent  with  general  usage  we  must,  whenever  there  is 
any  danger  of  misunderstanding,  say  distinctly  whether  the 
term  is  to  be  taken  in  its  narrower  or  its  broader  use. 

§  5.  In  this  connection  we  may  introduce  a  term  of  which 
Netadvan-  we  shall  have  to  make  frequent  use  hereafter, 
tages.  rJ^^Q  need  for  it  arises  from  the  fact  that  every 

times  require  a  little  trouble  to  discern  the  unity  in  substance,  underlying  the 
differences  in  the  words,  which  are  used  by  different  schools  of  economists  to 
express  their  doctrines. 

For  instance,  whatever  definition  of  capital  be  taken,  it  will  be  found  to  be 
true  that  a  general  increase  of  capital  augments  the  demand  for  labour  and 
raises  wages :  and,  whatever  definition  be  taken,  it  is  not  true  that  all  kinds  of 
capital  act  with  equal  force  in  this  direction,  or  that  it  is  possible  to  say  how 
great  an  effect  any  given  increase  in  the  total  amount  of  capital  will  have  in 
raising  wages,  without  specially  inquiring  as  to  the  particular  form  which  the 
increase  has  taken.  This  inquiry  is  the  really  important  part  of  the  work :  it 
has  to  be  made,  and  it  is  made  by  all  careful  writers  in  very  much  the  same 
manner,  and  it  comes  to  the  same  result,  whatever  be  the  definition  of  capital 
with  which  we  have  started. 


I 


CAPITAL.      INCOME.  73 

occupation  involves  other  disadvantages  besides  the  fatigue 
of  the  work  required  in  it,  and  every  occupation  offers  other 
advantages  besides  the  receipt  of  money  wages.  \['be  true 
reward  which  an  occupation  offers  to  labour  has  to  be  calcu- 
lated by  deducting  the  money  value  of  all  its  disadvantages 
from  that  of  all  its  advantages ;  and  we  may  describe  this 
true  reward  as  the  Net  Advantages  of  the  occupation.\ 

The  income  derived  from  wealth  has  many  forms.  It  in- 
cludes all  the  various  benefits  which  a  person  derives  from 
the  ownership  of  wealth  whether  he  uses  it  as  capital  or 
not.  Thus  it  includes  the  benefits  which  he  gets  from  the 
use  of  his  own  piano,  equally  with  those  which  a  piano  dealer 
would  win  by  letting  out  a  piano  on  hire.  And  it  includes, 
as  a  special  case,  the  money  income  which  is  derived  from 
capital.  This  income  is  most  easily  measured  when  it  takes 
the  form  of  a  payment  made  by  a  borrower  for  interest  of  - 
the  use  of  a  loan  for,  say,  a  year;  it  is  then      capital.  , 

expressed  as  the  ratio  which  that  payment  bears  to  the  loan,  *' 
and  is  called  interest. 

This  is  one  of  a  group  of  notions,  which  we  shall  need  to 
study  carefully  hereafter,  but  of  which  provisional  definitions 
may  conveniently  be  introduced  here. 

When  a  man  is  engaged  in  business,  his  profits  for  the 
year  are  the  excess  of  his  receipts  from  his  busi- 
ness  during   the   year   over   his   outlay  for   his  ' 
business ;  the  difference  between  the  value  of  his  stock  and 
plant  at  the  end  and  at  the  beginning  of  the  year  being  taken 
as  part  of  his  receipts  or  as  part  of  his  outlay,  according  'as 
there  has  been  an  increase  or  decrease  of  value.     What  re-  . 
mains  of  his  profits  after  deducting  interest  on  Earnings  of     I 
his  capital  at  the  current  rate  may  be  called  his  Management,  * 

EARNINGS    OF    UNDERTAKING   Or   MANAGEMENT.  T 

■'****''rhe  income  derived  from  the  ownership  of  land  and  other 
free  gifts  of   nature  is  commonly  called  rent; 
and  the  term  is  sometimes  stretched,  so  as  to 


74  BOOK   II.   CH.   IV.  §§   5,   6. 

include  the  income  derived  from  houses  and  other  thino:s  the 
supply  of  which  is  limited  and  cannot  quickly  be  increased. 
§  6.     Social  Income  may  be  estimated  by  adding  together 
the  incomes  of  the  individuals  in  the  society  in 

Social  income.  ,.  i     ,i  .,     i 

question,  whether  it  be  a  nation  or  any  other 
larger  or  smaller  group  of  persons.  B\d  to  reckon  it  directly 
is  for  most  purposes  simplest  and  best,  n^  very  thing  that  is 
produced  in  the  course  of  a  year,  every  service  rendered,  every 
fresh  utility  brought  about  is  a  part  of  the  national  income7*N;<. 

Thus  it  includes  the  benefit  derived  from  the  advice  of  a 
physician,  the  pleasure  got  from  hearing  a  professional  singer, 
and  the  enjoyment  of  all  other  services  which  one  person  may 
be  hired  to  perform  for  another.  It  includes  the  services 
rendered  not  only  by  the  omnibus  driver,  but  also  by  the 
coachman  who  drives  a  private  carriage.  It  includes  the 
services  of  the  domestic  servant  who  makes  or  mends  or 
cleans  a  carpet  or  a  dress,  as  well  as  the  results  of  the 
work  of  the  upholsterer,  the  milliner,  and  the  dyer*. 

1  We  must  however  be  careful  not  to  count  the  same  thing  twice.  If  we 
have  counted  a  carpet  at  its  full  value,  we  have  already  counted  the  values  of 
the  yarn  and  the  labour  that  were  used  in  making  it ;  and  these  must  not  be 
counted  again.  But  if  the  carpet  is  cleaned  by  domestic  servants  or  at  steam 
scouring  works,  the  value  of  the  labour  spent  in  cleaning  it  must  be  counted 
in  separately;  for  otherwise  the  results  of  this  labour  would  be  altogether 
omitted  from  the  inventory  of  those  newly-produced  commodities  and  conve- 
niences which  constitute  the  real  income  of  the  country. 

Again,  suppose  a  landowner  with  an  annual  income  of  £10,000  hires  a 
private  secretary  at  a  salary  of  £500,  who  hires  a  servant  at  Avages  of  £50.  It 
may  seem  that  if  the  incomes  of  all  these  three  persons  are  coimted  in  as  part 
of  the  net  income  of  the  country,  some  of  it  will  be  counted  twice  over,  and 
some  three  times.  But  this  is  not  the  case.  The  landlord  transfers  to  his 
secretary,  in  return  for  his  assistance,  part  of  the  purchasing  power  derived 
from  the  produce  of  land ;  and  the  secretary  again  transfers  part  of  this  to  his 
servant  in  return  for  his  assistance.  The  farm  produce  the  value  of  which 
goes  as  rent  to  the  landlord,  the  assistance  which  the  landlord  derives  from 
the  work  of  the  secretary,  and  that  which  the  secretary  derives  from  the  work 
of  the  servant  are  independent  parts  of  the  real  net  income  of  the  country; 
and  therefore  the  £10,000  and  the  £500  and  the  £50  which  are  their  money 
measures,  must  aU  be  counted  in  when  we  are  estimating  the  income  of  the 
country.  But  if  the  landlord  makes  an  allowance  of  £500  a  year  to  his  son, 
that  must  not  be  counted  as  an  independent  income ;  because  no  services  are 
rendered  for  it.    And  it  would  not  be  assessed  to  the  Income-tax. 


BOOK   III. 

DEMAND   AND   CONSUMPTION. 
CHAPTER   I. 

INTRODUCTORY. 

The  older  definitions  of  economics  described  it  as  the 
science  which  is  concerned  with  the  Pi;o^uction,  the  Dis- 
tribution, the  Exchange,  and  the  Cgnsumption  of  Wealth. 
Later  experience  has  shown  that  the  problems  of  Distribu- 
tion and  Exchange  are  so  closely  connected,  that  it  is  doubtful 
whether  anything  is  to  be  gained  by  the  attempt  to  keep  them 
separate.  There  is  however  a  good  deal  of  general  reasoning 
with  regard  to  the  relation  of  Demand  and  Supply  which  is 
required  as  a  basis  for  the  practical  problems  of  Value,  and 
which  acts  as  an  underlying  backbone  giving  unity  and  con- 
sistency to  the  main  body  of  economic  reasoning. 
It  is  the  subject  of  a  separate  Book  on  "The  volume*^^ 
General  Theory  of  Demand  and  Supply,"  which 
prepares  the  way  for  the  more  concrete  problems  of  "  Distribu- 
tion and  Exchange,  or  Value."  But  first  of  all  come  "  Demand 
and  Consumption,"  i.e.  the  Theory  of  Wants ;  and  "  Produc- 
tion and  Supply,"  i.e.  the  Theory  of  the  Efibrts  and  Sacrifices 
devoted  to  the  satisfaction  of  Wants  V     ^ 

1  Several  causes  have  combined  to  induce  contemporary  economists  to  pay  I 
more  attention  to  Demand  and  Consumption  than  was  done  by  Ricardo  and  > 
his  immediate  followers.    Compare  Principles  III,  i.  \ 


CHAPTER   II. 

WANTS   IN    RELATION   TO   ACTIVITIES. 

§  1.     Human  wants  and  desires  are  countless  in  number 
and  very  various  in  kind.     The  uncivilized  man  indeed  has 

not  many  more  than  the  brute  animal ;  but  every 
Wants  are         g^^p  •  ^^  j^-g  progj-ggs  upwards  increases  the  variety 

of  his  needs  together  with  the  variety  in  his 
methods  of  satisfying  them.  Thus  though  the  brute  and  the 
savage  alike  have  their  preferences  for  choice  morsels,  neither 
of  them  cares  much  for  variety  for  its  own  sake.  As,  however, 
man  rises  in  civilization,  as  his  mind  becomes  developed,  and 
even  his  animal  passions  begin  to  associate  themselves  with 
mental  activities,  his  wants  become  rapidly  more  subtle  and 
more  various;  and  in  the  minor  details  of  life  he  begins  to 
desire  change  for  the  sake  of  change,  long  before  he  has  con- 
sciously escaped  from  the  yoke  of  custom.  The  first  great 
step  in  this  direction  comes  with  the  art  of  making  a  fire: 
gradually  he  gets  to  accustom  himself  to  many  different  kinds 
I  of  food  and  drink  cooked  in  many  different  ways ;  and  before 
long  monotony  begins  to  become  irksome  to  him,  and  he  finds 
it  a  great  Hardship  when  accident  compels  him  to  live  for 
a  long  time  exclusively  on  one  or  two  kinds  of  food. 
\        As  a  man's  riches  increase  his  food   and  drink  becomes 

more    various    and    costly ;    but    his  ^^ppetite    is 
food^^  °^       limited  by  nature,  and  when  his  expenditure  on 

food  is  extravagant  it  is  more  often  to  gratify  the 
desires  of  hospitality  and  display  than  to  indulge  his  own 
senses. 


WANTS  IN   RELATION   TO  ACTIVITIES.  77 

But,  as  Senior  says  : — "  Strpng  as  is  the  desire  for  variety,* 
it  is  weak  compared  with  the  desire  for  distinc-  ,    ,.    . 

-_,;^ . si^^, for  distinction; 


tion:\a  feeling  which  if  we  consider  its  univer- 
sality and  its  constancy,  that  it  affects  all  men  and  at  all 
times,  that  it  comes  with  us  from  the  cradle  and  never  leaves 
us  till  we  go  into  the  grave,  may  be  pronounced  to  be  the  most 
powerful  of  human  passions."  This  great  half-truth  is  well 
illustrated  by  a  comparison  of  the  desire  for  choice  and  various 
food  with  that  for  choice  and  various  dress. 

§  2.     That  need  for  dress  which  is  the  result  of  natural 
causes  varies  with  the  climate  and  the  season  of 
year,  and  a  little  with  the  nature  of  a  person's  jrets!"^ ''°^*^^ 
occupations.      But  in  dress    conventional  wants 
overshadow  those  which  are  natural.    For  instance  in  England 
now  a  well-to-do  labourer  is  expected  to  appear  on  Sunday  in 
a  black  coat  and,  in  some  places,  in  a  silk  hat ;  though  these 
would  have  subjected  him  to  ridicule  but  a  short  time  ago; 
and  in  all  the  lower  ranks  of  life  there  is  a  constant  increase 
both  in  that  variety  and  expensiveness  which  custom  requires 
as  a  minimum,  and  in  that  which  it  tolerates  as  a  maximum ; 
and  the  efforts  to  obtain  distinction  by  dress  are  extending 
themselves  throughout  the  lower  grades  of  English  Society. 

But  in  the  upper  grades,  though  the  dress  of  women  is 
still  various  and  costly,  that  of  men  is  simple  and  inexpensive 
as  compared  with  what  it  was  in  Europe  not  long  ago,  and  is 
to-day  in  the  East.  For  those  men  who  are  most  truly  dis- 
tinguished on  their  own  account,  have  a  natural  dislike  to 
seem  to  claim  attention  by  their  dress ;  and  they  have  set 
the  fashion  \ 


1  A  woman  may  display  wealth,  but  vslie  may  not  display  or.ly  her  wealth, 
by  her  dress ;  or  else  she  defeats  her  ends.  She  must  also  suggest  some  dis- 
tinction of  character  as  well  as  of  wealth :  for  though  her  dress  may  owe  more 
to  her  dressmaker  than  to  herself,  yet  there  is  a  traditional  assumption  that, 
being  less  busy  than  man  with  external  affairs,  she  can  give  more  time  to 
taking  thought  as  to  her  dress.  Even  under  the  sway  of  modem  fashions,  to 
be  "well  dressed" — not  "expensively  dressed" — is  a  reasonable  minor  aim 


78  BOOK  III.  CH.  II.  §§  8,  4. 

§  3.     House-room  satisfies  the  imperative  need  for  shelter 
„  from  the  weather  :  but  that  need  plays  very  little 

House-room.  ,  ,  j:     ^  j 

part  in  the  effective  demand  for  house-room.  For 
though  a  small  but  well-built  cabin  gives  excellent  shelter,  its 
stifling  atmosphere,  its  necessary  uncleanliness,  and  its  want  of 
the  decencies  and  the  quiet  of  life  are  great  evils.  It  is  not  so 
much  that  they  cause  physical  discomfort  as  that  they  tend  to 
stunt  the  faculties,  and  limit  people's  higher  activities.  With 
every  increase  in  these  activities  the  demand  for  larger  house- 
room  becomes  more  urgent  \ 

And  therefore  relatively  large  and  well  appointed  house- 
room  is,  even  in  the  lowest  social  ranks,  at  once  a  "  necessary 
for  efficiency  V'  and  the  most  convenient  and  obvious  way  of 
advancing  a  material  claim  to  social  distinction.  And  even 
in  those  grades  in  which  everyone  has  house-room  sufficient  for 
the  higher  activities  of  himself  and  his  family,  a  yet  further 
and  almost  unlimited  increase  is  desired  as  a  requisite  for  the 
exercise  of  many  of  the  higher  social  activities. 

§  4.  It  is  again  the  desire  for  the  exercise  and  develop- 
, .  ,      ment  of  activities,  spreading  throuofh  every  rank 

Wants  which  -   ..-  ^  '     r  o  &  J     ^ 

develop  activi-  of  Society,  which  leads  not  only  to  the  pursuit  of 
science,  literature  and  art  for  their  own  sake,  but 
to  the  rapidly  increasing  demand  for  the  work  of  those  who 
pursue  them  as  professions.  This  is  one  of  the  most  marked 
characteristics  of  our  age ;  and  the  same  may  be  said  of  the 
growing  desire  for  those  amusements,  such  as  athletic  games 


for  those  who  desire  to  be  distinguished  for  their  faculties  and  abihties ;  and 
this  will  be  still  more  the  case  if  the  evil  dominion  of  the  wanton  vagaries  of 
fashion  should  pass  away.  For  to  arrange  costumes  beautiful  in  themselves, 
various  and  well-adapted  to  their  purposes  is  an  object  worthy  of  high  en- 
deavour ;  it  belongs  to  the  same  class,  though  not  to  the  same  rank  in  that 
class,  as  the  painting  of  a  good  picture. 

1  It  is  true  that  many  active  minded  working  men  prefer  cramped  lodgings 
in  a  town  to  a  roomy  cottage  in  the  country ;  but  that  is  because  they  have  a 
strong  taste  for  those  activities  for  which  a  country  life  offers  little  scope. 

2  See  above  Book  II.  ch.  iii.  §  3. 


WANTS   IN   RELATION   TO   ACTIVITIES.  79 

and  travelling,  which  develop  activities,  rather  than  indulge 
any  sensuous  craving  \ 

For  indeed  thef  desire  for  excellenceyor  its  own  sake,  is 
almost  as  wide  m  its  range  as  the  lower  i^desire  Desire  for 
for  distinction.^  As  that  graduates  down  from  excellence, 
the  ambition  of  those  who  may  hope  that  their  names  will 
be  in  men's  mouths  in  distant  lands  and  in  distant  times,  to 
the  hope  of  the  country  lass  that  the  new  ribbon  she  puts  on 
for  Easter  may  not  pass  unnoticed  by  her  neighbours;  so  the 
desire  for  excellence  for  its  own  sake  graduates  down  from 
that  of  a  Newton,  or  a  Stradivarius,  to  that  of  the  fisherman 
who,  even  when  no  one  is  looking  and  he  is  not  in  a  hurry, 
delights  in  handling  his  craft  well,  and  in  the  fact  ±hat  she 
is  well  built  and  responds  promptly  to  his  guicknce.  Vgesires 
of  this  kind  exert  a  great  influence  on  the\Supply|5of  the 
highest  faculties  and  the  greatest  inventions;  and  tney  are 
not  unimportant  on  the  side  of  Demand.  For  a  large  part  of 
the  demand  for  the  most  highly  skilled  professional  services 
and  the  best  work  of  the  mechanical  artisan,  arises  from  the 
delight  that  people  have  in  the  training  of  their  own  faculties, 
and  in  exercising  them  by  aid  of  the  most  delicately  ad- 
justed and  responsive  implements. 

Speaking  broadly  therefore,   although  it  is  man's  wants 
in  the   earliest  stages   of  his  development  that"    Relation  of 
gi\'(;  rise  to  his   activities,    yet  afterwards  each      Wants  to 
new  step  upwards  is  to  be  regarded  rather  as 
the  development  of  new  activities  giving  rise  to  new  wants, 
than  that  of  new  wants  giving  rise  to  new  activities. 

We  see  this  clearly  if  we  look  away  from  healthy  con- 
ditions of  life,  where  new  activities  are  constantly  being 
developed,  and  watch  the  West  Indian  negro  using  his  new 

ki  As  a  minor  point  it  may  be  noticed  that  those  drinks  which  stimulate  the 
mental  activities  are  largely  displacing  those  which  merely  gratify  the  senses. 
The  consumption  of  tea  is  increasing  very  fast  while  that  of  alcohol  is  station- 
ary; and  there  is  in  all  ranks  of  society  a  diminishing  demand  for  the  grosser 
and  more  immediately  stupefying  forms  of  alcohol. 


80  BOOK  III.    CH.  IT.   §  4. 

freedom  and  wealth  not  to  get  the  means  of  satisfying  new- 
wants,  but  in  idle  stagnation  that  is  not  rest;  or  again  look 
at  that  rapidly  lessening  part  of  the  English  working  classes, 
who  have  no  ambition  and  no  pride  or  delight  in  the  growth 
of  their  faculties  and  activities,  and  spend  on  drink  whatever 
surplus  their  wages  aJBFord  over  the  bare  necessaries  of  a 
squalid  life^ 

1  The  Theory  of  Wants  owes  much  to  Jevons'  brilliant  and  suggestive 
Tlieory  of  Political  Economy.  Hearn's  Plutology  or  Theory  of  the  Efforts  to 
satisfy  Human  Wants  affords  an  admirable  example  of  the  way  in  which 
detailed  analysis  may  be  applied  to  afford  a  training  of  a  very  high  order  for 
the  young,  and  to  give  them  an  intelligent  acquaintance  with  the  economic 
conditions  of  life,  without  forcing  upon  them  any  particular  solution  of  those 
more  diflScult  problems  on  which  they  are  not  yet  able  to  form  an  independent 
judgment- 

Jevons  would  however  appear  to  be  wrong  in  adopting  Banfield's  dictum 
that  "the  Theory  of  Consumption  is  the  scientific  basis  of  economics."  Comp. 
Principles  III.  ii.  4. 

Banfield  was  the  first  English  economist  who  owed  much  to  German 
thought:  he  had  been  greatly  influenced  by  Hermann's  excellent  studies  of 
the  varieties  of  human  wants  and  their  relation  to  production.  Hermann  on 
the  other  hand  owed  something  to  the  Englishman  Bentham,  who  had  also 
largely  influenced  Jevons  as  well  as  earlier  writers.  The  Austrian  Prof.  Carl 
Menger,  and  the  Swiss  Walras  wrote  at  about  the  same  time  as  Jevons  and  iu 
the  same  direction. 


CHAPTER  III. 

THE   LAW   OF  DEMAND. 

§  1.     We  have   seen  that  each  several  want  is  limited, 
and  that  with  every  increase  in  the  amount  of  a  ^j^^  ^^^  ^f 
thins:  which  a   man  has,  the   eagerness   of   his  Satiable 

°  ,       .  '.,...,  .,    .      Wants  or 

desire  to  obtain  more  of  it  diminishes;  until  it  Diminishing 
yields  place  to  the  desire  for  some  other  thing,  of  ^^^^^^y- 
which  perhaps  he  hardly  thought,  so  long  as  his  more  urgent 
wants  were  still  unsatisfied.  There  is  an  endless  variety  of 
wants,  but  there  is  a  limit  to  each  separate  want.  This 
familiar  and  fundamental  law  of  human  nature  may  pass  by 
the   name   of  the   law   op    satiable   wants  or  the  law  op 

DIMINISHING  UTILITY. 

It  may  be  written  thus  : — 

The  Total  Utility  of  a  thing  to  any  one  (that  is,  the 
total  pleasure  and  other  benefit  it  yields  him)  ^     ^ 
increases  with  every  increase  in  his  stock  of  it, 
but  does  not  increase  as  fast  as  his  stock  increases.     If  his 
stock  of  it  increases  at  a  uniform  rate  the  pleasure  derived 
from  it  increases  at  a  diminishing  rate. 

In  other  words,  the  additional  benefit  which  a  person  de- 
rives from  a  given  increase  of  his  stock  of  anything,  diminishes 
with  every  increase  in  the  stock  that  he  already  has. 

That  part  of  the  commodity  which  he  is  only  just  induced  to 
urchase  may  be  called  his  marginal  purchase  ;     Marginal 
cause  he  is  on  the  margin  of  doubt  whether  it     Purchase, 
worth  his  while  to  incur  the  outlay  required  to  obtain  it. 

d  the  Utility  of  his  marginal  purchase  may  be  called  the 

M,  6 


82  BOOK  III.    OH.   III.  §§   1 — 4. 

Marginal  Utility'  of  the  commodity  to  him.     Or,  if  instead 

Marginal      of  buying  it,  he  makes  the  thing  himself,  then 

utility.        j^g   marginal   utility  is  the  utility   of    that  part 

which  he  thinks  it  only  just  worth  his  while  to  make.     And 

,  thus  the  Law  just  given  may  be  worded  : — 

The  Marginal  Utility  of  a  commodity  to  any  one  dimin- 
ishes with  every  increase  in  the  amount  of  it  he  already  has^ 

§  2.  Now  let  us  translate  this  Law  of  Diminishing  Utility 
„       ,    .  into  terms  of  price.     Let  us  take  an  illustration 

Translation  ^ 

ofthe  Law  into  from  the  case  of  a  commodity  such  as  tea,  which 
terms  o  price.  -^  .^  constant  demand  and  which  can  be  pur- 
chased in  small  quantities.  Suppose,  for  instance,  that  tea  of 
a  certain  quality  is  to  be  had  at  2s.  per  lb.  A  person  might 
be  willing  to  give  10s.  for  a  single  pound  once  a  year  rather 
than  go  without  it  altogether ;  while  if  he  could  have  any 
amount  of  it  for  nothing  he  would  perhaps  not  care  to  use 
more  than  30  lbs.  in  the  year.  But  as  it  is,  he  buys  perhaps 
10  lbs.  in  the  year;  that  is  to  say,  the  difference  between  the 
happiness  which  he  gets  from  buying  9  lbs.  and  10  lbs.  is  just 
enough  for  him  to  be  willing  to  pay  2s.  for  it:  while  the  fact 
that  he  does  not  buy  an  eleventh  pound,  shows  that  he  does 
not  think  that  it  would  be  quite  worth  an  extra  2s.  to  him. 
That  is,  2s.  a  pound  measures  the  utility  to  him  of  the  tea 
which  lies  at  the  margin  or  terminus  or  end  of  his  purchases; 
it  measures  the  marginal  utility  to  him.  If  the  price  which 
he  is  just  willing  to  pay  for  any  pound  be  called  his  Demand- 
Marginai  PRICE,  then  2s.  is  his  Marginal  Demand-price. 

demand-price,   ^^d  our  law  may  be  worded: — 

An  increase  in  the  amount  of  a  thing  that  a  person  has 
will,  other  things  being  equal,  diminish  his  Marginal  Demand- 
price  for  it. 

1  The  term  Marginal  {Orenz-nutzen)  tv^as  first  used  in  this  connection  by 
the  Austrian  Prof.  Wieser.  It  has  been  adopted  by  Prof.  Wicksteed.  It  cor- 
responds to  Jevons'  term  Final. 

2  For  some  qualifications  of  this  statement,  and  for  some  remarks  on  the 
analogy  between  the  Law  of  Diminishing  Utility  and  that  of  Diminishing 
Return  in  agi'iculture,  see  Principles  III.  iii.  1. 


THE  LAW  OF  DEMAND.  83 

§  3.  But  of  course  a  greater  utility  will  be  required  to 
induce  him  to  buy  a  thing  if  he  is  poor  than  if  ^^^  ^^^  .^^^ 
he  is  rich.  A  shilling  is  the  measure  of  less  utility  of 
pleasure  to  a  rich  man,  than  to  a  poor  one.  We  "™°"*=y  ^^"^s- 
have  already^  noticed,  for  instance,  that  a  clerk  with  XI 00 
a-year  will  walk  into  business  in  a  much  heavier  rain  than  the 
clerk  with  £300  a-year ;  for  a  sixpenny  omnibus  fare  measures 
a  greater  utility  to  the  poorer  man  than  to  the  richer.  If  the 
poorer  man  spends  the  money,  he  will  suffer  more  from  the 
want  of  it  afterwards  than  the  richer  would.  The  utility,  or 
the  benefit,  that  is  measured  in  the  poorer  man's  mind  by  six- 
pence is  greater  than  that  measured  by  it  in  the  richer  man's 
mind.  If  the  richer  man  rides  a  hundred  times  in  the  year 
and  the  poorer  man  twenty  times,  then  the  utility  of  the 
hundredth  ride  which  the  richer  man  is  only  just  induced  to 
take  is  measured  to  him  by  sixpence ;  and  the  utility  of  the 
twentieth  ride  which  the  poorer  man  is  only  just  induced  to 
take  is  measured  to  him  by  sixpence,  ^^or  each  of  them  the 
marginal  utility  is  measured  by  sixpence;  but  this  marginal 
utility  is  greater  in  the  case  of  the  poorer  man  than  in  that 
of  the  richer,  y 

In  other  words  the  richer  a  man  becomes,  the  less  is  thoj 
marginal  utility  of  money  to  him;  every  increase  in  his  re- 
sources increases  the  price  which  he  is  willing  to  pay  for  any 
given  benefit.  And  in  the  same  way  every  diminution  of  his 
resources  increases  the  marginal  utility  of  money  to  him,  and 
diminishes  the  price  that  he  is  willing  to  pay  for  any  benefit. 

§  4.     "When  then  we  say  that  a  person's  demand  for  any-p| 
hing  increases,  we  mean  that  he  will  buy  more     ^   erson's      ' 

it  than  he  would  before  at  the  same  price,  and      Demand  for 

hat  he  will  buy  as  much  of  it  as  before  at  a     ^"^    *"^' 

higher  price.     To  complete  our  knowledge  of  his  demand  for 

it,  we  should  have  to  ascertain  how  much  of  it  he  would  be 

willing  to  purchase  at  each  of  the  prices  at  which  it  is  likely 

1  Book  I.  ch.  V.  §  3. 

6—2 


< 


84 


BOOK   III.   CH.   III. 


4,  6. 


to  be  offered ;  and  the  complete  circumstances  of  his  demand 
for,  say,  tea  can  be  expressed  by  a  list,  or  schedule  of  the 
prices  which  he  is  willing  to  pay;  that  is,  by  his  several 
Demand-Prices  for  different  amounts  of  it. 

Thus  for  instance  we  may  find  that  he  would  buy 

6  lb.  at  the  price  of  50d.  per  lb. 


7 
8 
9 

10 
11 
12 
13 


40 
33 
28 
24 
21 
19 
18 


If   corresponding   prices   were 
diate  amounts  we  should  have   an 
demand  \ 


filled   in   for   all  interme- 
exact   statement   of   his 


1  We  may  here  introduce  the  first  of  a  series  of  simple  diagrams  designed 
to  illustrate  economic  theory.  Those  who  wish  may  omit  them;  for  the 
reasoning  in  the  text  is  always  complete  in  itself  and  does  not  depend  on 
them.  They  do  but  express  familiar  facts  in  a  new  language  which  is  terse  and 
precise,  and  will  be  found  helpful  by  those  readers  who  are  inclined  towards  it. 
Such  a  demand  schedule  may  be  translated,  on  a  plan  now  coming  into 
familiar  use,  into  a  curve  that  may  be  called  his  demand  curve.  Let  Ox  and 
Oy  be  drawn  the  one  horizontally,  the  other  vertically.  Let  an  inch  measured 
along  Ox  represent  10  lb.  of  tea,  and  an  inch  measured  along  Oy  represent 
40d. 

y  D 


Take 


Tenths  of 

Fortieths  of 

an  inch. 

an  inch. 

Omi  =  6,    and  draw  miPi  =  50 

Om2  =  7       , 

„       «?2JP2  =  40 

0^3  =  8       , 

„     msPs  =  S3 

0»i4  =  9       , 

„     m4i>4  =  28 

0ms  =  10     , 

„       ^5^^5  =  24 

0^6  =  11       , 

„       OT6i?6  =  21 

0^7  =  12     , 

„      W7i>7=19 

0^8  =  13       , 

.             „       W8i>8  =  18 

Fig.  (1). 


9   $:  9  S:   $  S  S 


THE   LAW   OF   DEMAND.  85 

We  see  then  that  a  person's  demand  for  a  thing  dependsX 
on  the  price  at  which  the  thing  is  to  be  had ;  and  an  increase  1 
in  his  demand  means  generally  an  increase  throughout  the  I 
whole  list  of  prices  at  which  he  is  willing  to  purchase  different   r 
amounts  of  it ;  and  not  merely  that  he  is  willing  to  buy  more 
of  it  at  the  current  priced 

§  5.  So  far  we  have  looked  at  the  demand  of  a  single 
individual.  And  in  the  particular  case  of  such  a  Demand  of  a 
thing  as  tea,  the  demand  of  a  single  person  is  "market, 
fairly  representative  of  the  general  demand  of  a  whole  market : 
for  the  demand  for  tea  is  a  constant  one;  and,  since  it  can  be 
purchased  in  small  quantities,  every  variation  in  its  price  is 
likely  to  affect  the  amount  which  he  will  buy.  But  even 
among  those  things  which  are  in  constant  use,  there  are 
many  for  which  the  demand  on  the  part  of  any  single  in- 
dividual cannot  vary  continuously  with  every  small  change  in 
price,  but  can  move  only  by  great  leaps.  For  instance  a 
small  fall  in  the  price  of  hats  or  watches  will  not  affect  the 
action  of  everyone,  but  it  will  induce  a  few  persons,  who  were 
in  doubt  whether  or  not  to  get  a  new  hat  or  a  new  watch,  to 
decide  in  favour  of  doing  so. 

In  large  markets,  however,  where  rich  and  poor,  old  and 
young,  men  and  women,  persons  of  all  varieties  of  tastes, 
temperaments  and  occupations  are  mingled  together,  every 
fall,  however  slight,  in  the  price  of  a  commodity  in  general 
use,  will,  other  things  being  equal,  increase  the  total  sales  of 

»?,  being  on  Ox  and  viypi  being  drawn  vertically  from  nii;   and  so  for  the 

others.    Then  jy^p^ pg  are  points  on  his  Demand  Curve  for  tea;  or  as  we 

may  say  Demand  Points.  If  we  could  find  demand  points  in  the  same  manner 
for  every  possible  quantity  of  tea  we  should  get  the  whole  continuous  curve 
DD'  as  shown  in  the  figure. 

1  Geometrically  it  is  represented  by  raising  his  demand  curve,  or,  what 
comes  to  the  same  thing,  moving  it  to  the  right,  with  perhaps  some  modifica- 
tion of  its  shape ;  or  in  other  words  by  raising  his  demand  schedule. 

For  some  discussion  of  the  uses  of  the  term  Demand  by  Mill  and  Cairnes, 
see  Principles  III.  iii.  4. 


86  BOOK  III.    CH.  III.   §  5. 

it;  just  as  an  unhealthy  autumn  increases  the  mortality  of  a 
large  town,  though  many  persons  are  uninjured  by  it. 

Let  us  however  return  to  the  demand  for  tea.  The 
aggregate  demand  in  the  place  is  the  sum  of  the  demands 
of  all  the  individuals  there.  Some  will  be  richer  and  some 
poorer  than  the  individual  consumer  whose  demand  schedule 
we  have  just  written  down;  some  will  have  a  greater  and 
others  a  smaller  liking  for  tea  than  he  has.  Let  us  suppose 
that  there  are  in  the  place  a  million  purchasers  of  tea,  and 
that  their  average  consumption  is  equal  to  his  at  each  several 
price.  Then  the  demand  of  that  place  is  represented  by  the 
same  schedule  as  before,  if  we  write  a  million  pounds  of  tea 
instead  of  one  pound'. 

There  is  then  one  Law  of  Dj-^mand,  which  is  common  to 

all  demand  schedules,  viz.  that  the  greater  the 

^^^/^^^         amount  to  be  sold,  the  smaller  will  be  the  price 

at   which  it   will  find  purchasers ;    or   in  other 

words,!  that  the  amount  demanded  increases  with  a  fall  in 

price, 'and  diminishes  with  a  rise  in  price. 

There  will  not  be  any  exact  relation  betw^een  the  fall  in 
price  and  the  increase  of  demand.  A  fall  of  one-tenth  in  the 
price  may  increase  the  sales  by  a  twentieth  or  by  a  quarter, 
or  it  may  double  them.  But  as  the  numbers  in  the  left- 
hand  column  of  the  demand  schedule  increase,  those  in  the 
right-hand  column  will  always  diminish. 


1  The  demaud  is  represented  by  the  same  curve  as  before,  only  an  inch 
measured  along  Ox  now  represents  ten  million 
pounds  instead  of  ten  pounds.     And  a  formal 
definition  of  the  Demand  curve  for  a  market 
Y\o  (2).  may  be  given  thus : — The  demand  curve  for  any 

commodity  in  a  market  during  any  given  unit 
of  time  is  the  locus  of  demand  points  for  it. 
That  is  to  say,  it  is  a  curve  such  that  if  from 
any  point  P  on  it,  a  straight  line  PM  be  drawn 
perpendicular  to  Ox,  PM  represents  the  price 
at  which  purchasers  will  be  forthcoming  for  an 
amount  of  the  commodity  represented  by  OM, 


THE  LAW  OF   DEMAND.  87 

The  price  will  measure  the  Marginal  Utility  of  the  com- 
modity to  each  purchaser :  but  as  the  purchasers  are  likely 
to  be  some  rich  ajid  others  poor,  we  cannot  speak  of  price  as 
measuring  Marginal  Utility  in  general,  but  only  with  reference 
to  some  individual  purchaser  \ 

1  It  must  be  remembered  that  the  demand  schedule  gives  the  prices  at 
which  various  quantities  of  a  thing  can  be  sold  in  a  market  during  a  given 
time  and  under  given  conditions.  If  the  conditions  vary  in  any  respect  the 
figures  of  the  schedule  will  probably  require  to  be  changed ;  and  this  has  con- 
stantly to  be  done  when  the  desire  for  anything  is  materially  altered  by  a 
variation  of  custom,  or  by  a  cheapening  of  the  supply  of  a  rival  commodity,  or 
by  the  invention  of  a  new  one.  For  instance,  the  demand  schedule  for  tea  is 
drawn  out  on  the  assumption  that  the  price  of  coffee  is  known ;  but  a  failure 
of  the  coffee  harvest  would  raise  the  prices  throughout  the  demand  schedule 
for  tea,  and  again  the  demand  for  gas  is  liable  to  be  reduced  by  an  improve- 
ment in  electric  lighting. 

It  is  even  conceivable,  though  not  probable,  that  a  simultaneous  and  pro- 
portionate fall  in  the  price  of  all  teas  may  diminish  the  demand  for  some  par- 
ticular kind  of  it ;  if  it  happens  that  those  whom  the  increased  cheapness  of 
tea  leads  to  substitute  a  superior  kind  for  it  are  more  numerous  than  those 
who  are  led  to  take  it  in  the  place  of  an  inferior  kind.  The  question  where 
the  lines  of  division  between  different  commodities  should  be  drawn  must  be 
settled  by  the  convenience  of  the  particular  question  under  discussion.  For 
some  purposes  it  may  be  best  to  regard  Chinese  and  Indian  teas,  or  even 
Souchong  and  Pekoe  teas,  as  different  commodities;  and  to  have  a  separate 
list  of  demand  prices  (or  demajid  schedule)  for  each  of  them.  While  for  other 
piu:poses  it  may  be  best  to  group  together  commodities  as  distinct  as  beef  and 
mutton,  or  even  as  tea  and  coffee,  and  to  have  a  single  Ust  of  prices  to  repre- 
sent the  demand  for  the  two  combined;  but  in  such  a  case  of  course  some 
convention  must  be  made  as  to  the  number  of  ounces  of  tea  which  are  taken 
as  equivalent  to  a  pound  of  coffee. 

These  and  some  similar  points  are  further  discussed  in  Principles  III. 
m.  6. 


CHAPTER   IV. 

LAW   OF   DEMAND,   CONTINUED.      ELASTICITY   OF   DEMAND. 

§  1.  We  have  seen  that  the  only  universal  law  as  to  a 
person's  desire  for  a  commodity  is  that  it  dimi- 
demand  ^  °  nishes,  other  things  being  equal,  with  every  in- 
crease in  his  supply  of  that  commodity.  But  this 
diminution  may  be  slow  or  rapid.  If  it  is  slow  the  price  that 
he  will  give  for  the  commodity  will  not  fall  much  in  conse- 
quence of  a  considerable  increase  in  his  supply  of  it;  and  a 
small  fall  in  price  will  cause  a  comparatively  large  increase  in 
his  purchases.  But  if  it  is  rapid,  a  small  fall  in  price  will 
cause  only  a  very  small  increase  in  his  purchases.  In  the 
former  case  his  willingness  to  purchase  the  thing  stretches 
itself  out  a  great  deal  under  the  action  of  a  small  inducement : 
the  elasticity  of  his  demand,  we  may  say,  is  great.  In  the 
latter  case  the  extra  inducement  given  by  the  fall  in  price 
causes  hardly  any  extension  of  his  desire  to  purchase :  the 
elasticity  of  his  demand  is  small. 

And  as  with  the  demand  of  one  person  so  with  that  of 
a  whole  market.  The  elasticity  op  demand  in  a  market  is 
great  or  small  according  as  the  amount  demanded  increases 
much  or  little  for  a  given  fall  in  price,  and  diminishes  much 
or  little  for  a  given  rise  in  priced 

§  2.  The  price  which  is  so  high  relatively  to  the  poor  man 
.^.         as  to  be  almost  prohibitive,  may  be  scarcely  felt 

vanes  with  ^  ^  . 

different  by  the  rich;    the  poor  man  for  instance  never 

tastes  wine,  but  the  very  rich  man  may  drink  as 


incomes. 


1  A  mathematical  device  for  measuring  elasticity  is  given  in  Princixdes 
III.  IV.  1. 


THE  LAW  OF  DEMAND.  89 

much  of  it  as  he  has  a  fancy  for,  without  giving  himself  a 
thought  of  its  cost.  "We  shall  therefore  get  the  clearest  notion 
of  the  law  of  the  elasticity  of  demand,  by  considering  one  class 
of  society  at  a  time.  Of  course  there  are  many  degrees  of 
richness  among  the  rich,  and  of  poverty  among  the  poor ;  but 
for  the  present  we  may  neglect  these  minor  subdivisions. 

When  the  price  of  a  thing  is  very  high  relatively  to  any 
class,  they  will  buy  but  little  of  it ;  and  in  some  cases  custom 
and  habit  may  prevent  them  from  using  it  freely  even  after  its 
price  has  fallen  a  good  deal.  It  may  still  remain  set  apart  for 
a  limited  number  of  special  occasions,  or  for  use  in  extreme 
illness,  &c.  But  such  cases,  though  not  infrequent,  will  not 
form  the  general  rule,  and  anyhow  as  soon  as  it  has  been 
taken  into  common  use,  any  considerable  fall  in  its  price  will 
cause  a  great  increase  in  the  demand  for  it.  The  elasticity  of 
demand  will  be  great  for  high  prices,  and  great  or  at  least 
considerable  for  medium  prices,  but  it  will  decline  as  the 
price  falls;  and  gradually  fades  away  if  the  fall  goes  so  far 
that  satiety  level  is  reached. 

This  rule  appears  to  hold  with  regard  to  nearly  all  commo- 
dities and  with  regard  to  the  demand  of  every  class;  save  only 
that  the  level  at  which  "very  high"  prices  end  and  "high" 
prices  begin,  is  different  for  different  classes  and  so  again  is 
the  level  at  which  "low"  prices  end  and  "very  low"  prices 
begin.  There  are  however  many  varieties  in  detail;  arising 
chiefly  from  the  fact  that  there  are  some  commodities  with 
which  people  are  easily  satiated,  and  others — chiefly  things 
used  for  display — for  which  their  desire  is  almost  unlimited^, 

§  3.     There  are  some  things  the  current  prices  of  which 
in  this  country  are  "very  low"  relatively  even  to 
the  poorer  classes;  such  are  for  instance  salt,  and 
many  kinds  of  savours  and  flavours,  and  also  cheap  medicines. 

1  In  Principles  III.  iv.  2, 3  the  graphic  method  is  used  to  illustrate  the  way 
in  which  the  demands  of  the  several  sections  of  a  community  for  a  commodity 
are  comhined  to  make  the  aggregate  demand. 


90  BOOK  III.   CH.  IV.  §§  3,  4. 

It  is  doubtful  whether  any  fall  in  price  would  induce  a  consi- 
derable increase  in  the  consumption  of  these. 

The  current  prices  of  meat,  milk  and  butter,  wool,  tobacco, 
imported  fruits,  and  of  ordinary  medical  attendance,  are  such 
that  every  variation  in  price  makes  a  great  change  in  the 
consumption  of  them  by  the  working  classes,  and  the  lower 
half  of  the  middle  classes;  but  the  rich  would  not  much  in- 
crease their  own  personal  consumption  of  them  however  cheaply 
they  were  to  be  had.  In  other  words  the  direct  demand  for 
these  commodities  is  very  elastic  on  the  part  of  the  working 
and  lower  middle  classes,  though  not  on  the  part  of  the  rich. 
But  the  working  class  is  so  numerous  that  their  consumption 
of  such  things  as  are  well  within  their  reach  is  much  greater 
than  that  of  the  rich  ;  and  therefore  the  aggregate  demand  for 
all  things  of  the  kind  is  very  elastic.  A  little  while  ago  sugar 
belonged  to  this  group  of  commodities :  but  its  price  in  Eng- 
land has  now  fallen  so  far  as  to  be  low  relatively  even  to  the 
working  classes,  and  the  demand  for  it  is  therefore  not 
elastic. 

The  current  prices  of  wall-fruit,  of  the  better  kinds  of  fish 
and  other  moderately  expensive  luxuries  are  such  as  to  make 
the  consumption  of  them  by  the  middle  class  increase  much 
with  every  fall  in  price ;  in  other  words  the  middle  class  de- 
mand for  them  is  very  elastic  :  while  the  demands  on  the 
part  of  the  rich  and  on  the  part  of  the  working  class  is  much 
less  elastic,  the  former  because  it  is  already  nearly  satiated, 
the  latter  because  the  price  is  still  too  high. 

The  current  prices  of  such  things  as  rare  wines,  fruit  out 
of  season,  highly  skilled  medical  and  legal  assistance,  are  so 
high  that  there  is  but  little  demand  for  them  except  from 
the  rich  :  but  what  demand  there  is  has  in  most  cases  con- 
siderable elasticity.  And  in  fact  much  of  the  demand  for 
the  more  expensive  kinds  of  food  is  really  a  demand  for  the 
means  of  obtaining  social  distinction,  and  is  almost  in- 
satiable. 


THE   LAW   OF  DEMAND.  91 

§  4.     The  case  of  necessaries  is  exceptional.      When  the  i 
price  of  wheat  is  very  high,  and  again  wKen  it  Demand  for      i 
is  very  low,  the  demand  has  very  little  elasticity :  necessaries.     * 
at  all  events  if  we  assume  that  wheat,  even  when  scarce,  is  thdSi 
cheapest  food  for  man ;  and  that,  even  when  most  plentiful, 
it  is  not  consumed  in  any  other  way.     We  know  that  a  fall  in 
the  price  of  the  quartern  loaf  from  ^d.  to  4c?.  has  scarcely  any 
effect  in  increasing  the  consumption  of  bread.     With  regard 
to  the  other  end  of  the  scale  it  is  more  difficult  to  speak  with 
certainty,  because  there  has  been  no  approach  to  a  scarcity  in 
England  since  the  repeal  of  the  corn  laws.     But,  availing  our- 
selves of  estimates  made  in  a  less  happy  time,  we  may  sup- 
pose that  deficits  in  the  supply  of  1,  2,  3,  4,  or  5  tenths  would 
cause  a  rise  in  price  of  3,  8,  16,  28,  or  45  tenths  respectively. 
Much  greater  variations  in  prices  indeed  than  this  have  not 
been  uncommon.    Thus  wheat  sold  in  London  for  ten  shillings 
a  bushel  in  1335,  but  in  the  following  year  it  sold  for  ten 
pence. 

There  may  be  even  more  violent  changes  than  this  in  the 
price  of  a  thing  which  is  not  necessary,  if  it  is  perishable  and 
the  demand  for  it  is  inelastic :  thus  fish  may  be  very  dear  one 
day,  and  sold  for  manure  two  or  three  days  later. 

Water  is  one  of  the  few  things  the  consumption  of  which 
we  are  able  to  observe  at  all  prices  from  the  very  highest 
down  to  nothing  at  all.     At  moderate  prices  the  demand  for 
it  is  very  elastic.     But  the  uses  to  which  it  can  be  put  are    # 
capable  of  being  completely  filled :  and  as  its  price  sinks  to-  / 
wards  zero  the  demand  for  it  loses  its  elasticity.     Nearly  the  ' 
same  may  be  said  of  salt.     Its  price  in  England  is  so  low  that 
the  demand  for  it  as  an  article  of  food  is  very  inelastic :  h\x% 
in  India  the  price  is  comparatively  high  and  the  demand  i% 
comparatively  elastic. 

The  price  of  house-room  on  the  other  hand  has  never 
fallen  very  low  except  when  a  locality  is  being  deserted  by 
its  inhabitants.     Where  the  condition  of  society  is  healthy. 


92  BOOK  III.   CH.  IV.  §§  4,  5. 

and  there  is  no  check  to  general  prosperity,  there  seems 
always  to  be  an  elastic  demand  for  house-room,  on  account 
both  of  the  real  conveniences  and  the  social  distinction  which 
it  affords.  The  desire  for  those  kinds  of  clothing  which  are 
not  used  for  the  purpose  of  display,  is  satiable:  when  their 
price  is  low  the  demand  for  them  has  scarcely  any  elasticity. 

§  5.  When  trying  to  ascertain  how  the  purchases  of  a 
Causes  that  Commodity  are  affected  by  changes  in  its  price,  we 
obscure  the  in-  ^^^^  ^j^j^   several  difficulties.      We   must  take 

fluence  of  price 

on  demand.  account  of  changes  in  the  purchasing  power  of 
money  which  are  a  source  of  confusion  in  all  statistics  of 
prices.  And  we  must  allow  for  changes  in  fashion,  and  taste 
and  habit,  for  the  opening  out  of  new  uses  of  a  commodity, 
for  the  discovery  or  improvement  or  cheapening  of  other  things 
that  can  be  applied  to  the  same  uses  with  it. 

And  further  we  must  remember  that  time  is  required  to 
enable  a  rise  in  the  price  of  a  commodity  to  exert  its  full 
-,  -      influence  on  consumption.     Time  is  required  for 

Slowness  of  .... 

the  growth  of  consumers  to  become  familiar  with  substitutes 
that  can  be  used  instead  of  it,  and  perhaps  for 
producers  to  get  into  the  habit  of  producing  them  in  sufficient 
quantities.  Time  may  be  also  wanted  for  the  growth  of  habits 
of  familiarity  with  the  new  commodities  and  the  discovery  of 
methods  of  economizing  them. 

For  instance  when  wood  and  charcoal  became  dear  in 
England,  familiarity  with  coal  as  a  fuel  grew  slowly,  fireplaces 
were  but  slowly  adapted  to  its  use,  and  an  organized  traffic  in 
it  did  not  spring  up  quickly  even  to  places  to  which  it  could 
be  easily  carried  by  water :  the  invention  of  processes  by 
which  it  could  be  used  as  a  substitute  for  charcoal  in  manu- 
facture went  even  more  slowly,  and  is  indeed  hardly  yet  com- 
plete. Again,  when  in  recent  years  the  price  of  coal  became 
very  high,  a  gi-eat  stimulus  was  given  to  the  invention  of 
economies  in  its  use  especially  in  the  production  of  iron  and 
steam ;  but  few  of  these  inventions  bore  much  practical  fruit 


» 


THE  LAW  OF   D'EMAND.  93 

till  after  the  high  price  had  passed  away.  Again,  when  a 
new  line  of  tramways  or  of  suburban  railways  is  opened,  even 
those  who  live  near  the  line  do  not  get  into  the  habit  of 
making  the  most  of  its  assistance  at  once;  and  a  good  deal 
more  time  elapses  before  many  of  those  whose  places  of 
business  are  near  one  end  of  the  line  change  their  homes  so 
as  to  live  near  the  other  end.  Again,  when  petroleum  first 
became  plentiful  few  people  were  ready  to  use  it  freely ; 
gradually  petroleum  and  petroleum  lamps  have  become  familiar 
to  all  classes  of  society :  too  much  influence  would  therefore  be 
attributed  to  the  fall  in  price  which  has  occurred  since  then, 
if  it  were  credited  with  all  the  increase  of  consumption'. 

1  The  demand  for  things  of  a  higher  quality  depends  much  on  sensibility: 
some  people  care  little  for  a  refined  flavour  in  their  wine  provided  they  can 
get  plenty  of  it :  others  crave  a  high  quality,  but  are  easily  satiated.  In  the 
ordinary  working  class  districts  the  inferior  and  the  better  joints  are  sold  at 
nearly  the  same  price:  but  some  well  paid  artisans  in  the  north  of  England 
have  developed  a  liking  for  the  best  meat,  and  will  pay  for  it  nearly  as  high  a 
price  as  can  be  got  in  the  west  end  of  London,  where  the  price  is  kept  arti- 
ficially high  by  the  necessity  of  sending  the  inferior  joints  away  for  sale  else- 
where.   Use  also  gives  rise  to  acquired  distastes  as  well  as  to  acquired  tastes. 

Generally  speaking  those  things  have  the  most  elastic  demand,  which  are 
capable  of  being  applied  to  many  different  uses.  Water  for  instance  is  needed 
first  as  food,  then  for  cooking,  then  for  washing  of  various  kinds  and  so  on. 
When  there  is  no  special  drought,  but  water  is  sold  by  the  pailful,  the  price 
may  be  low  enough  to  enable  even  the  poorer  classes  to  drink  as  much  of  it  as 
they  are  inclined,  while  for  cooking  they  sometimes  use  the  same  water  twice 
over,  and  they  apply  it  very  scantily  in  washing.  The  middle  classes  will 
perhaps  not  use  any  of  it  twice  for  cooking;  but  they  will  make  a  pail  of 
water  go  a  good  deal  further  for  washing  purposes  than  if  they  had  an  un- 
limited supply  at  command.  When  water  is  supplied  by  pipes,  and  charged 
at  a  very  low  rate  by  meter,  many  people  use  as  much  of  it  even  for  washing 
as  they  feel  at  all  inclined  to  do;  and  when  the  water  is  supplied  not  by 
meter  but  at  a  fixed  annual  charge ;  and  is  laid  on  in  every  place  where  it  is 
wanted,  the  use  of  it  for  every  purpose  is  carried  to  the  full  satiety  limit. 

These  matters  are  further  discussed,  and  some  inquiry  is  made  as  to  the 
difiiculties,  the  importance  and  the  methods  of  obtaining  accurate  statistics  of 
national  and  domestic  consumption  in  Principles  III.  iv.  6,  7,  and  a  Note  at 
the  end  of  the  chapter. 


CHAPTER  V. 

THE  CHOICE   BETWEEN   DIFFERENT  USES   OF  THE   SAME 
THING.      IMMEDIATE   AND   DEFERRED   USES. 

^   1.     The   primitive   housewife   finding   that   she   has 'a 
limited  number  of  hanks  of  yam  from  the  year's 

Distribution  of     ,  .  .,  n     ,i  ,  .  „ 

means  be-         shearmg,   considers  all  the   domestic   wants  for 
tween  different  clothing  and  tries  to  distribute  the  yarn  between 

uses.  . "  %Biwii  •^ 

them  in  such  a  way  as  to  contribute  as  much  as 
possible  to  the  family  well-being.  She  will  think  she  has 
failed  if,  when  it  is  done,  she  has  reason  to  regret  that  she 
did  not  apply  more  to  making,  say  socks,  and  less  to  vests. 
That  would  mean  that  she  had  miscalculated  the  points  at 
which  to  suspend  the  making  of  socks  and  vests  respectively ; 
that  she  had  gone  too  far  in  the  case  of  vests,  and  not  far 
enough  in  that  of  socks ;  and  that  therefore  at  the  points  at 
which  she  actually  did  stop,  the  utility  of  yarn  turned  into 
socks  was  greater  than  that  of  yarn  turned  into  vests.  But 
if,  on  the  other  hand,  she  hit  on  the  right  points  to  stop  at, 
then  she  made  just  so  many  socks  and  vests  that  she  got  an 
equal  amount  of  good  out  of  the  last  bundle  of  yarn  that  she 
applied  to  socks,  and  the  last  she  applied  to  vests.  This  illus- 
trates a  general  principle,  which  may  be  expressed  thus  : — 

If  a  person  has  a  thing  which  he  can  put  to  several  uses, 
he  will  distribute  it  between  these  uses  in  such  a  way  that  it 
has  the  same  marginal  utility  in  all.  For  if  it  had  a  greater 
marginal  utility  in  one  use  than  another,  he  would  gain  by 
taking  away  some  of  it  from  the  second  use  and  applying  it  to 
the  first. 


CHOICE   BETWEEN   DIFFERENT  USES.  95 

One  great  disadvantage  of  a  primitive  economy,  in  which 
there  is  but  Httle  free  exchange,  is  that  a  person  may  easily 
have  so  much  of  one  thing,  say  wool,  that,  when  he  has 
applied  it  to  every  possible  use,  its  marginal  utility  in  each 
use  is  low :  and  at  the  same  time  he  may  have  so  little  of 
some  other  thing,  say  wood,  that  its  marginal  utility  for  him 
is  very  high.  Meanwhile  some  of  his  neighbours  may  be  in 
great  need  of  wool,  and  have  more  wood  than  they  can  turn 
to  good  account.  If  each  gives  up  that  which  Difficulties  of 
has  for  him  the  lower  utility  and  receives  that  t»arter. 
which  has  the  higher,  each  will  gain  by  the  exchange.  But 
to  make  such  an  adjustment  by  barter,  would  be  tedious  and 
difficult. 

The  difficulty  of  barter  is  indeed  not  so  very  great  where 
there  are  but  a  few  simple  commodities,  each  of  which  can  be 
adapted  by  domestic  work  to  several  uses ;  the  weaving  wife 
and  the  spinster  daughters  adjusting  rightly  the  marginal 
utilities  of  the  different  uses  of  the  wool,  while  the  husband 
and  the  sons  do  the  same  for  the  wood. 

§  2.  But  when  commodities  have  become  very  numerous 
and  highly  specialized,  there  is  an  urgent  need  The  need  for 
for  the  free  use  of  money,  or  general  purchasing  "^o^ey. 
power;  for  that  alone  can  be  applied  easily  in  an  unlimited 
variety  of  purchases.  And  in  a  money-economy,  good  ma- 
nagement is  shown  by  so  adjusting  the  margins  of  suspense 
on  each  line  of  expenditure  that  the  marginal  utility  of  a 
shilling's  worth  of  goods  on  each  line  shall  be  the  same. 

Thus  for  instance  the  clerk  who  is  in  doubt  whether  to 
ride  to  town,  or  to  walk  and  have  some  little  extra  indulgence 
at  his  lunch,  is  weighing  against  one  another  the  (marginal) 
utilities  of  two  different  modes  of  spending  his  money.     And 
when   an   experienced   housekeeper   urges   on   a 
young  couple  the  importance  of  keeping  accounts  domestic 
carefully,  a  chief  motive  of  the  advice  is  that  a'^'^o""^^- 
they  may  avoid  spending  impulsively  a  great  deal  of  money  on 


96  BOOK  III.  CH.  V.  §§  2,  3. 

furniture  and  other  things  ;  for,  though  some  quantity  of  these 
is  really  needful,  yet,  when  bought  lavishly,  they  do  not  give 
high  (marginal)  utilities  in  proportion  to  their  cost.  And 
when  the  young  pair  look  over  their  year's  budget  at  the  end 
of  the  year,  and  find  perhaps  that  it  is  necessary  to  curtail  their 
expenditure  somewhere,  they  compare  the  (marginal)  utilities 
of  different  items,  weighing  the  loss  of  utility  that  would 
result  from  taking  away  a  pound's  expenditure  here,  with  that 
which  they  would  lose  by  taking  it  away  there :  they  strive 
to  adjust  their  parings  down  so  that  the  aggregate  loss  of 
utility  may  be  as  little  as  possible. 

§  3.  The  different  uses  between  which  a  commodity  is 
distributed  need  not  all  be  present  uses ;  some  may  be  present 
and  some  future.  A  prudent  person  will  endeavour  to  dis- 
tribute his  means  between  all  their  several  uses 
future  benefits  Present  and  future  in  such  a  way  that  they  will 
against  pre-  have  in  each  the  same  marginal  utility.  But,  in 
estimating  the  present  marginal  utility  of  a  dis- 
tant source  of  benefit  to  him,  a  twofold  allowance  must  be 
made ;  firstly,  for  its  uncertainty ' ;  and  secondly,  for  the  dif- 
ference in  the  value  to  him  of  a  distant  as  compared  with  a 
present  benefit^. 

If  people  regarded  future  benefits  as  equally  desirable 
with  similar  and  equal  benefits  at  the  present 
fits  are  "dis-  time,  they  would  probably  endeavour  to  dis- 
counted'^ at  tribute  their  pleasures  evenly  throughout  their 
by  different  lives.  They  would  therefore  generally  be  willing 
^^°^  ^'  to  give  up  a  present  pleasure  for  the  sake  of  an 

equal  pleasure  in  the  future,  provided  they  could  be  certain  of 
having  it.  But  in  fact  human  nature  is  so  constituted  that 
in  estimating  the  "present  value"  of  a  future  benefit  most 

1  This  is  an  objective  property  which  all  well-informed  persons  would  esti- 
mate in  the  same  way. 

2  This  is  a  subjective  property  which  different  people  would  estimate  in 
different  ways  according  to  their  individual  characters,  and  their  circumstances 
at  the  time. 


CHOICE   BETWEEN    DIFFERENT   USES.  97 

people  generally  make  a  second  deduction  from  its  future 
value,  in  the  form  of  what  we  may  call  a  "discount,"  that 
increases  with  the  period  for  which  the  pleasure  is  deferred. 
One  will  reckon  a  distant  benefit  at  nearly  the  same  value 
which  it  would  have  for  him  if  it  were  present ;  while  another 
who  has  less  power  of  realizing  the  future,  less  patience  and 
self-control,  will  care  comparatively  little  for  any  benefit  that 
is  not  near  at  hand. 

Many  people  derive  from  the  mere  feeling  of  ownership  a 
stronger  satisfaction  than  they  derive  from  ordinary  pleasures 
in  the  narrower  sense  of  the  term :  for  example,  the  delight  in 
the  possession  of  land  will  often  induce  people  to  pay  for  it  so 
high  a  price  that  it  yields  them  but  a  very  poor  return  on 
their  investment.  There  is  a  delight  in  ownership  for  its  own 
sake ;  and  there  is  a  delight  in  ownership  on  account  of  the 
distinction  it  yields.  Sometimes  the  latter  is  stronger  than 
the  former,  sometimes  weaker;  and  perhaps  no  one  knows 
himself  or  other  people  well  enough  to  be  able  to  draw  the 
line  quite  certainly  between  the  two^. 

1  The  rates  at  which  different  people  discount  the  future  afifect  not  only 
their  tendency  to  save,  as  the  term  is  ordinarily  understood,  but  also  their 
tendency  to  buy  things  which  will  be  a  lasting  source  of  pleasure  rather  than 
those  which  give  a  stronger  but  more  transient  enjoyment ;  to  buy  a  new  coat 
rather  than  to  indulge  in  a  drinking  bout,  or  to  choose  simple  furniture  that 
will  wear  well,  rather  than  showy  furniture  that  will  soon  fall  to  pieces.  And 
further,  the  same  person  will  discount  future  pleasures  at  different  rates  at 
different  times,  according  to  his  mood.  This,  and  some  questions  connected 
with  the  difference  between  discounting  a  future  pleasure  and  discounting  a 
future  pleasurable  event  are  discussed  in  Principles  III.  v.  3,  4. 


CHAPTER  VI. 

VALUE   AND   UTILITY. 

§  1.     We  may  now  turn  to  consider  how  far  the  price 

which  is  actually  paid  for  a  thing  represents  the 

Price  and  pleasure  that  arises  from  its  possession.     This  is 

a  wide  subject  on  which  economic  science  has 

very  little  to  say,  but  that  little  is  of  some  importance. 

We  have  already  seen  that  the  price  which  a  person  pays 
for  a  thing,  can  never  exceed,  and  seldom  comes  up  to  that 
which  he  would  be  willing  to  pay  rather  than  go  without  it : 
so  that  the  gratification  which  he  gets  from  its  purchase 
generally  exceeds  that  which  he  gives  up  in  paying  away  its 
price;  ajid  he  thus  derives  from  the  purchase  a  surplus  of 
pleasure.^^he  excess  of  the  price  which  he  would  be  willing 
to  pay  rathei?  than  go  without  it,  over  that  which  he  actually 
does  pay.  is  the  economic  measure  of  this  surplus 
Consumers'  pleasure  \and  for  reasons  which  will^ppear  later 
on,  may  be  called  Consumers'  Rent\\ 

It  is  obvious  that  the  Consumers'  Rents  derived  from 
some  commodities  are  much  greater  than  from  others.  There 
are  many  comforts  and  luxuries  of  which  the  prices  are  very 
much  below  those  which  many  people  would  pay  rather  than 
go  entirely  without  them;  and  which  therefore  afford  a  very 
great  Consumers'  Rent.  Good  instances  are  matches,  salt,  a 
penny  newspaper,  or  a  penny  postage-stamp. 

In  order  to  give  definiteness  to  our  notions,  let  us  con- 
sider the  case  of  tea  purchased  for  domestic  consumption. 
Let  us  take  the  case  of  a  man,  who,  if  the  price  of  tea  were 

1  It  is  not  necessary  for  our  present  purpose  to  take  account  of  the  possi- 
bility that  the  marginal  utility  of  money  to  him  might  be  appreciably  altered 
in  the  course  of  his  purchases. 


VALUE  AND   UTILITY.  99 

20*\  a  lb.,  would  just  be  induced  to  buy  one  lb.  annually ; 
who  would  just  be  induced  to  buy  two  lbs.  if  the  price  were 
14s.,  three  lbs.  if  the  price  were  10s.,  four  lbs.  if  the  price 
were  6s.,  five  lbs.  if  the  price  were  4s.,  six  lbs.  if  the  price 
were  3s.,  and  who,  the  price  being  actually  2s.,  does  purchase 
seven  lbs.  We  have  to  investigate  the  Consumers'  Rent  which 
he  derives  from  his  power  of  purchasing  tea  at  2s.  a  lb. 

The  fact  that  he  would  just  be  induced  to  purchase  one 
lb.  if  the  price  were  20s.,  proves  that  the  total  satisfaction 
which  he  derives  from  that  lb.  is  at  least  as  great  as  that 
which  he  could  obtain  by  spending  20s.  on  other  things. 

When  the  price  falls  to  14s.,  he  could,  if  he  chose,  continue 
to  buy  only  one  pound.  He  would  then  get  for  14s.  what  was 
worth  to  him  at  least  20s.;  and  thus  obtain  a  surplus  satis- 
faction worth  to  him  at  least  6s.,  or  in  other  words  a  Consumers' 
Rent  of  at  least  6s.  But  in  fact  he  buys  a  second  pound  of  his 
own  free  choice,  thus  showing  that  he  regards  it  as  worth  to 
him  at  least  14s.  He  obtains  for  28s.  what  is  worth  to  him 
at  least  20s.  +  14s. ;  i.e.  34s.  His  surplus  satisfaction  is 
therefore  not  diminished  by  buying  it,  but  remains  worth  at 
least  6s.  to  him.  The  total  utility  of  the  two  pounds  is  worth 
at  least  34s.,  his  Consumers'  Rent  is  at  least  6s. 

When  the  price  falls  to  10s.,  he  might,  if  he  chose,  continue 

to  buy  only  two  pounds,  and  obtain  for  20s.  what  was  worth 

to  him  at  least  34s.,  and  derive  a  surplus  satisfaction  worth 

,14s.     But  in  fact  he  prefers  to  buy  a  third  pound :  and  as 

le  does  this  freely,  we  know  that  he  does  not  diminish  his 

surplus  satisfaction  by  doing  it.     He  now  gets  for  30s.  three 

)ounds ;  of  which  the  first  is  worth  to  him  at  least  20s.,  the 

jcond  at  least  14s.,  and  the  third  at  least  10s.     The   total 

itility  of  the  three  is  worth  at  least  44s.,  his  Consumers'  Rent 

at  least  14s.,  and  so  on. 

When  at  last  the  price  has  fallen  to  2s.,  he  buys  seven 
mnds,  which  are  severally  worth  to  him  not  less  than  20,  14, 
.0,  6,  4,  3,  and  2s.,  or  59s.  in  all.     This  sum  measures  their 

7—2 


100  BOOK   III.    CH.    VI.   §§   1,   2. 

total  utility  to  him,  and  his  Consumers'  Rent  is  (at  least)  the 
excess  of  this  sum  over  the  14s.  he  actually  does  pay  for  them; 
i.e.  45s.  This  is  the  excess  value  of  the  satisfaction  he  gets 
from  buying  the  tea  over  that  which  he  could  have  got  by 
spending  the  14s.  in  extending  a  little  his  purchase  of  other 
commodities,  of  which  he  had  just  not  thought  it  worth  while 
to  buy  more  at  their  current  prices ;  and  any  further  purchases 
of  which  therefore  would  not  yield  him  any  Consumers'  Rent. 
In  the  same  way  if  we  were  to  neglect  for  the  moment 
Tr  n  t*  t  *^®  ^^^^  ^^^^  ^^®  same  sum  of  money  represents 
the  demand  different  amounts  of  pleasure  to  different  people, 
we  might  measure  the  surplus  satisfaction  which 
the  sale  of  tea  affords,  say,  in  the  London  market,  by  the 
aggregate  of  the  sums  by  which  the  prices  shown  in  a  complete 
demand  schedule  for  tea  exceeds  its  selling  priced 

1  Let  us  then  consider  the  demand  curve  DD'  for  tea  in  any  large  market. 
ji-      /3^  Let  OH  be  the  amount  which  is  sold  there  at  the 

price  HA  annually,  a  year  being  taken  as  our  unit 
of  time.  Taking  any  point  M  in  OH  let  us  draw 
MI'  vertically  upwards  to  meet  the  curve  in  P  and 
cut  a  horizontal  hne  through  A  in  B.  We  will 
suppose  the  several  lbs.  numbered  in  the  order 
of  the  eagerness  of  the  several  purchasers:  the 
eagerness  of  the  purchaser  of  any  lb.  being  mea- 
sured by  the  price  he  is  just  willing  to  pay  for 
that  lb.  The  figure  informs  us  that  OM  units 
can  be  sold  at  the  price  FM;  but  that  at  any 
higher  price  not  quite  so  many  lbs.  can  be  sold. 
There  must  be  then  some  individual  who  will 
buy  more  at  the  price  FM,  than  he  will  at  any 
higher  price;  and  we  are  to  regard  the  (93/th  lb.  as  sold  to  this  indi- 
vidual. Suppose  for  instance  that  FM  represents  4s.,  and  that  OM  repre- 
sents a  million  lbs.  The  purchaser  described  in  the  text  is  just  willing  to  buy 
his  fifth  lb.  of  tea  at  the  price  4s.,  and  the  OMth  or  millionth  lb,  of  tea 
may  be  said  to  be  sold  to  him.  If  AH  and  therefore  liM  represent  2s.,  the 
Consumers'  Kent  derived  from  the  OMth  lb.  is  the  excess  of  FM  or  4s.  which  the 
purchaser  of  that  lb.  would  have  been  willing  to  pay  for  it  over  RM  the  2s. 
which  he  actually  does  pay  for  it.  Let  us  suppose  that  a  very  thin  vertical 
parallelogram  is  drawn  of  which  the  height  is  FM  and  of  which  the  base  is  the 
distance  along  Ox  that  measures  the  single  unit  or  lb.  of  tea.  It  will  be  con- 
venient henceforward  to  regard  price  as  measured  not  by  a  mathematical 


VALUE   AND   UTILITY.  101 

§  2.     This  reasoning,  with  its  new  names  and  elaborate 
machinery,  appears  at  first  sight  laboured  and  unreal.     But 
on  closer  study  it  will  be  found  to  introduce  no  new  diffi- 
culties and  to  make  no  new  assumptions;  but       .    ,  ctrine 
only  to  bring  to  light  difficulties  and  assump-  merely  gives 
tions  that  are  latent  in  the  common  language  pressionto 
of  the  market-place.     For  in  this,   as  in  other  ffmiiiarno- 

...  tions. 

cases,  the  apparent  simplicity  of  popular  phrases 

straight  line  without  thickness,  as  PM\  but  by  a  very  thin  parallelogram,  or 
as  it  may  be  called  a  thick  straight  line,  of  which  the  breadth  is  in  every  case 
equal  to  the  distance  along  Ox  which  measures  a  unit  or  lb.  of  tea.  Thus  we 
should  say  that  the  total  satisfaction  derived  from  the  OMih.  lb.  of  tea  is 
represented  (or,  on  the  assumption  made  in  the  last  paragraph  of  the  text  is 
measured)  by  the  thick  straight  line  MP;  that  the  price  paid  for  this  lb.  is 
represented  by  the  thick  straight  line  MR  and  the  Consumers'  Rent  derived 
from  this  lb.  by  the  thick  straight  line  RP.  Now  let  us  suppose  that  such 
thin  parallelograms,  or  thick  straight  lines,  are  drawn  for  all  positions  of 
M  between  0  and  H,  one  for  each  lb.  or  unit  of  tea.  The  thick  straight  lines 
thus  drawn,  as  MP  is,  from  Ox  up  to  the  demand  curve  will  each  represent 
the  aggregate  of  the  satisfaction  derived  from  a  lb.  of  tea;  and  taken  together 
thus  occupy  and  exactly  fill  up  the  whole  area  DOHA.  Therefore  we  may  say 
that  the  area  DOHA  represents  the  aggregate  of  the  satisfaction  derived  from 
the  consumption  of  tea.  Again  each  of  the  straight  lines  drawn,  as  MR  is, 
from  Ox  upwards  as  far  as  -4  (7  represents  the  price  that  actually  is  paid  for  a 
lb.  of  tea.  These  straight  lines  together  make  up  the  area  COHA  ;  and  there- 
fore this  area  represents  the  total  price  paid  for  tea.  Finally  each  of  the 
straight  lines  drawn  as  RP  is  from  A  C  upwards  as  far  as  the  demand  curve, 
represents  the  Consumers'  Rent  derived  from  the  corresponding  lb.  of  tea. 
These  straight  lines  together  make  up  the  area  DC  A  ;  and  therefore  this 
area  represents  the  total  Consumers'  Rent  that  is  derived  from  tea  when  the 
price  is  AH.  But  it  must  be  repeated  that  this  geometrical  measurement  is 
only  an  aggregate  of  the  measures  of  benefits  which  are  not  all  measured  on  the 
same  scale  except  on  the  assumption  just  made  in  the  text.  Unless  that 
assumption  is  made  the  area  only  represents  an  aggregate  of  satisfactions,  the 
several  amounts  of  which  are  not  exactly  measured.  On  that  assumption 
only,  its  area  measures  the  volume  of  the  total  net  satisfaction  derived  from 
the  tea  by  its  various  purchasers. 

The  notion  of  an  exact  measurement  of  Consumers'  Rent  was  published  by 
Dupuit  in  1844.  But  his  work  was  forgotten;  and  the  first  to  publish  a  clear 
analysis  of  the  relation  of  total  to  marginal  (or  final)  utility  in  the  English 
language  was  Jevons  in  1871,  when  he  had  not  read  Dupuit.  The  notion  of 
Consumers'  Rent  was  suggested  to  the  present  writer  by  a  study  of  the 
mathematical  aspects  of  demand  and  utility  under  the  influence  of  Cournot, 
von  Thiinen  and  Bentham. 


102  BOOK   III.   CH.   VI.  §§   2,  8. 

veils  a  real  complexity,  and  it  is  the  duty  of  science  to  bring 
oat  that  latent  complexity;  to  face  it;  and  to  reduce  it  as 
far  as  possible :  so  that  in  later  stages  we  may  handle  firmly 
difficulties  that  could  not  be  grasped  with  a  good  grip  by  the 
vague  thought  and  language  of  ordinary  life. 

It  is  a  common  saying  in  ordinary  life  that  the  real  value 
of  things  to  us  is  not  gauged  by  the  price  we  pay  for  them : 
that,  though  we  spend  for  instance  much  more  on  tea  than 
on  salt;  yet  salt  is  of  greater  real  value  to  us;  and  that 
As  regards  a  this  would  be  clearly  seen,  if  we  were  entirely 
single  person,  (deprived  of  it.  This  line  of  argument  is  but 
thrown  into  precise  technical  form,  when  it  is  said  that  we 
[cannot  trust  the  marginal  utility  of  a  commodity  to  indicate 
its  total  utility:  on  the  ground  that  though,  when  a  person 
spends  sixpence  on  a  quarter  of  a  pound  of  tea  instead  of  on 
a  stone  of  salt,  he  does  so  because  he  prefers  the  tea :  yet  he 
would  not  prefer  the  tea  if  he  did  not  know  that  he  could 
easily  get  whatever  salt  he  needed  for  his  more  urgent  re- 
quirements. And  if  an  attempt  were  made  to  give  this  vague 
saying  greater  definiteness,  the  ordinary  course  would  be  to 
estimate  first  the  price  that  he  would  pay  for  a  small  quantity 
of  tea,  rather  than  go  without  it;  and  next  what  he  would 
pay  for  further  supplies,  if  it  became  a  little  more  plentiful ; 
and  next  what  he  would  pay  for  further  supplies,  and  so  on  : 
and  the  whole  would  be  added  up.  And  then  the  like  would 
be  done  for  salt,  and  the  two  would  be  compared.  The  pro- 
cess would  be  the  same  as  in  our  reasoning;  but  it  would 
remain  vague ;  or  if  an  attempt  were  made  to  be  definite  and 
exact,  there  would  be  much  waste  of  labour  in  the  absence  of 
appropriate  phrases  and  machinery. 

Or  the  real  value  of  anything  might  be  discussed  with 

reference,  not  to  a  single  individual,  but  to  people  in  general ; 

and  then  it  would  naturally  be  assumed  that  a  shilling's  worth 

of  gratification  to  one  Englishman  might  be  taken  as  equiva- 

1  Book  I.  ch.  V.  and  Book  III.  cL.  iv. 


^  VALUE  AND   UTILITY.  103 

HMent  with  a  shilling's  worth  to  another,  "to  start  with,"  and 
^B" until  cause  to  the  contrary  were  shown."     But 

H|r  •'  or  as  regards 

B  every  one  would  know  that  this  was  a  reason-  people  in 
■     able  course  only  on  the  supposition  that  the  con-  ^^"^*"^  • 

sumers  of  tea  and  those  of  salt  belonged  to  the  same  classes  of 
people ;  and  included  people  of  every  variety  of  temperament. 
And  if,  instead  of  comparing  tea  and  salt,  which  are  both 
used  largely  by  all  classes,  we  had  compared  either  of  them 
with  champagne  or  pineapples,  this  consumption  could  not 
have  been  made  even  for  a  first  rough  guess.  In  earlier 
generations  many  statesmen,  and  even  some  economists,  neg- 
lected to  make  adequate  allowance  for  considerations  of  this 
class,  especially  when  constructing  schemes  of  taxation ;  and 
their  words  or  deeds  seemed  to  imply  a  want  of  sympathy 
with  the  sufierings  of  the  poor ;  though  more  often  they  were 
due  simply  to  want  of  thought. 

On  the  whole  however  it  happens  that  by  far  the  greater 
number  of  the  events  with  which  economics  deals,  affect  in 
about  equal  proportions  all  the  different  classes  of  society;  so  \ 
that  if  the  money  measures  of  the  happiness  caused  by  two  I 
events   are   equal,   there   is   not   in   general   any  very  great  I 
difierence  between  the  amounts  of  the  happiness  in  the  two  | 
cases.     And  it  is  on  account  of  this  fact  that  the  exact  mea-  | 
surement  of  the  Consumers'  Rent  in  a  market  has  already  ■ 
much  theoretical  interest,  and  may  become  of  high  practical 
importance  ^ 

§  3.     There   is  another  need  for  caution  when  estimat- 
ing the  dependence  of  well-being  upon  material 
wealth.       Not    only   does    a   person's   happiness  collective 
often  depend  more  on  his  own  physical,  mental  ^^*^^^' 
and  moral  health  than  on  the  external  conditions  of  his  well- 
being:  but  even  among  these  conditions  many  that  are  of 
chief  importance  for  his  real  happiness  are  apt  to  be  omitted 
from   an   inventory  of   his  wealth.     Some  are  free   gifts  of 
1  Many  misapprehensions  as  to  the  nature  of  Consumers'  Rent  are  dis- 
cussed in  Principles  HI.  (especially  Ed.  iii.). 


104  BOOK  III.   CH.   VI.   §§   3,   4. 

nature;  and  these  might  indeed  be  neglected  without  great 
harm  if  they  were  always  the  same  for  everybody ;  but  in  fact 
they  vary  much  from  place  to  place.  More  of  them  however 
are  elements  of  collective  wealth  which  are  often  omitted  from 
the  reckoning  of  individual  wealth;  but  which  become  im- 
portant when  we  compare  different  parts  of  the  modern  civi- 
lized world,  and  even  more  important  when  we  compare  our 
own  age  with  earlier  times. 

§  4.  An  increase  of  income  nearly  always  causes  pleasure ; 
but  the  new  enjoyments  which  it  provides  often  lose  quickly 
much  of  their  charm.  Partly  this  is  the  result  of  familiarity ; 
which  makes  people  cease  to  derive  much  pleasure  from  accus- 
tomed comforts  and  luxuries,  though  they  suffer  great  pain 
from  their  loss.  Partly  it  is  due  to  the  fact  that  with  in- 
creased riches  there  often  comes  either  the  weariness  of  age,  or 
at  least  an  increase  of  nervous  strain,  and  perhaps  habits  of 
living  that  lower  physical  vitality  and  diminish  the  capacity 
for  pleasure. 

In  every  civilized  country  there  have  been  some  followers 
of  the  Buddhist  doctrine  that  a  placid  serenity  is 
sur"and  rest  ^^®  highest  ideal  of  life ;  that  it  is  the  part  of  the 
wise  man  to  root  out  of  his  nature  as  many  wants 
and  desires  as  he  can;  that  real  riches  consist  not  in  the 
abundance  of  goods  but  in  the  paucity  of  wants.  .  At  the  other 
extreme  are  those  who  maintain  that  the  growth  of  new 
wants  and  desires  is  always  beneficial  because  it  stimulates 
people  to  increased  exertions.  \They  seem  to  have  made  the 
mistake,  as  Mr  Herbert  Spencer  says,  of  supposing  that  life  is 
for  working,  instead  of  working  for  life. 

The  truth  seems  to  be  that  as  human  nature  is  consti- 
tuted, man  rapidly  degenerates  unless  he  has  some  hard 
work  to  do,  some  difficulties  to  overcome;  and  that  some 
V  lu  of  work  s^^'^^^^^^s  exertion  is  necessary  for  physical  and 
for  its  own  moral  health.  The  fulness  of  life  lies  in  the  de- 
velopment and  activity  of  as  many  and  as  high 
faculties  as  possible.      There  is  intense  pleasure  in  the  ardent 


VALUE   AND   UTILITY.  105 

pursuit  of  any  aim,  whether  it  be  success  in  business,  the 
advancement  of  art  and  science,  or  the  improvement  of  the 
condition  of  one's  fellow-beings.  The  highest  constructive 
work  of  all  kinds  must  often  alternate  between  periods  of  over- 
strain and  periods  of  lassitude  and  stagnation ;  but  for  ordinary 
people,  for  those  who  have  no  strong  ambitions,  whether  of  a 
lower  or  a  higher  kind,  a  moderate  income  earned  by  moderate 
and  fairly  steady  work  offers  the  best  opportunity  for  the 
growth  of  those  habits  of  body,  mind  and  spirit  in  which  alone 
there  is  true  happiness. 

There  is  some  misuse  of  wealth  in  all  ranks  of  society. 
And  though  speaking  generally,  we  may  say  that  every 
increase  in  the  income  of  the  working  classes  adds  to  the 
fulness  and  nobility  of  human  life,  because  it  is  used  chiefly 
in  the  satisfaction  of  real  wants;  yet  even  among  the  artisans 
in  England,  and  perhaps  still  more  in  new  countries,  there 
are  signs  of  the  growth  of  that  unwholesome  desire  for  wealth 
as  a  means  of  display  which  has  been  the  chief  bane  of  the 
well-to-do  classes  in  every  civilized  country.  SXiaws  against 
luxury  have  been  futile;  but  it  would  be  a  gain 
if  the  moral  sentiment  of  the  community  could  The  higher 

•'  uses  of  wealth. 

induce  people  to  avoid  all  sorts  of  display  of 
individual  wealth.  There  are  indeed  true  and  worthy  plea- 
sures to  be  got  from  wisely  ordered  magnificence :  but  they 
are  at  their  best  when  free  from  any  taint  of  personal  vanity 
on  the  one  side,  and  envy  on  the  other;  as  they  are  when 
they  centre  round  public  buildings,  public  parks,  public  col- 
lections of  the  fine  arts,  and  public  games  and  amusements. 
So  long  as  wealth  is  applied  to  provide  for  every  family  the 
necessaries  of  life  and  culture,  and  an  abundance  of  the 
higher  forms  of  enjoyment  for  collective  use,  so  long  the 
pursuit  of  wealth  is  a  noble  aim ;  and  "the  pTeasures  which  it 
brings  are  likely  to  increase  with  the  growth  of  those  higher 
activities  which  it  is  used  to  promote.N. 

When  the  necessaries  of  life  are  once  provided,  everyone 


106  BOOK   III.    CH.    VI.   §   8. 

should  seek  to  increase  the  beauty  of  things  in  his  possession 
rather  than  their  number  or  their  magnificence.  An  im- 
provement in  the  artistic  character  of  furniture  and  clothing 
trains  the  higher  faculties  of  those  who  make  them,  and  is  a 
source  of  growing  happiness  to  those  who  use  them.  But  if 
instead  of  seeking  for  a  higher  standard  of  beauty,  we  spend 
our  growing  resources  on  increasing  the  complexity  and  intri- 
cacy of  our  domestic  goods,  we  gain  thereby  no  true  benefit, 
no  lasting  happiness,  ^i^he  world  would  go  much  better  if 
everyone  would  buy  fewer  and  simpler  things,  and  would 
take  trouble  in  selecting  them  for  their  real  beauty;  being 
careful  of  course  to  get  good  value  in  return  for  his  outlay, 
but  preferring  to  buy  a  few  things  made  well  by  highly  paid 
labour  rather  than  many  made  badly  by  low  paid  labour.\ 
But  we  are  exceeding  the  proper  scope  of  the  present  Book; 
the  discussion  of  the  influence  on  general  well-being  which  is 
exerted  by  the  mode  in  which  each  individual  spends  his 
income  is  one  of  the  more  important  of  those  applications  of 
economic  science  to  the  art  of  living  which  will  find  their 
place  at  the  end  of  the  Treatise. 


BOOK    IV. 

THE   AGENTS   OF   PRODUCTION. 
LAND,   LABOUPv,  CAPITAL   AND   ORGANIZATION. 

CHAPTER   I. 

INTRODUCTORY. 

§  L  The  agents  of  production  are  commonly  classed  as 
Land,  Labour  and  Capital.  By  Land  is  meant  the  material 
and  the  forces  which  Nature  gives  freely  for  Agents  of  Pro- 
man's  aid,  in  land  and  water,  in  air  and  light  ^"^tion. 
and  heat.  By  Capital  is  meant  all  stored  up  provision  for  the 
production  of  material  goods,  and  for  the  attainment  of  those 
benefits  which  are  commonly  reckoned  as  part  of  income. 

Capital  consists  in  a  great  part  of  knowledge  and  organiza- 
tion :  and  of  this  some  part  is  private  property  and  other  part 
is  not.  The  distinction  between  the  public  and  private  pro- 
perty in  knowledge  and  organization  is  of  great  and  growing 
importance :  in  some  respects  of  more  importance  than  that 
between  public  and  private  property  in  material  things :  it 
cannot  be  fully  examined  till  a  much  later  stage  in  our  in- 
quiry :  but  something  has  to  be  said  of  it  in  the  present  Book. 
And  partly  for  that  reason  it  seems  best  sometimes  to  reckon 
Organization  apart  as  a  separate  Agent  of  Production. 

It  is  not  possible  at  this  stage  to  do  more  than  indicate 
very  slightly  the  general  relations  between  Demand  and 
Supply,  between  Consumption  and  Production.  But  it  may 
be  well,  while  the  discussion  of  utility  and  value  is  fresh  in 
our  minds,  to  take  a  short  glance  at  the  relations  between 


108  BOOK  IV.   CH.   I.  §§   1—8. 

value  and  the  disutility  or  discommodity  that  has  to  be  over- 
come in  order  to  obtain  those  goods  which  have  value  because 
they  are  at  once  desirable  and  difficult  of  attainment. 

§  2.  While  demand  is  based  on  the  desire  to  obtain  com- 
modities, supply  depends  on  the  overco&iiftg;^  the  unwilling- 
ness to  undergo  "discommodities."  These  fall  generally  under 
one  of  two  classes,  labour  and  the  abstinence  involved  in 
putting  off  consumption. 

It  is  true  that  much  exertion  is  undergone  for  its  own 
At  present  the  ^^ke,  as  for  instance  in  mountaineering,  in  play- 
chief  motive  to  ins:  games  and  in  the  pursuit  of  literature,  of 

work  is  the  ,      „        .  i  i    ,         n  i     •      i 

hope  of  art,  and  of  science ;  and  much  hard  work  is  done 

reward.  under  the  influence  of  a  desire  to  benefit  others ; 

and  such  work  has  for  the  greater  part  no  economic  measure. 
But  the  chief  motive  to  most  work,  in  the  present  state  of  the 
world,  is  the  desire  to  obtain  some  material  advantage,  which 
often  appears  in  the  first  instance  in  the  form  of  the  gain 
of  a  certain  amount  of  money,  or  command  over  commodities 
in  general.  Even  when  a  man  is  working  for  hire,  he  often 
finds  pleasure  in  his  work ;  but  he  generally  gets  so  far  tired 
before  it  is  done,  that  he  is  glad  when  the  hour  for  stopping 
arrives.  Perhaps  after  he  has  been  out  of  work  for  some 
time,  he  might,  as  far  as  his  immediate  comfort  is  concerned, 
rather  work  for  nothing  than  not  work  at  all;  but  he  will 
probably  prefer  to  store  up  his  strength  till  he  can  get  paid 
for  his  work.     In  most   occupations   even  that  part  of  the 

(work  which  affords  the  worker  more  pleasure  than  pain,  must 
as  a  rule  be  paid  for  at  the  same  rate  as  the  rest ;  the  price  of 
I  the  whole  therefore  is  determined  by  that  part  of  the  labour 
I  which  is  most  unwillingly  given,  and  which  the  worker  is  on 
I  the  verge  of  refusing  to  give ;  or  as  we  may  say  Marginal  dis- 
^ by  the  Marginal  disutility  of  labour'.  utility. 

1  As  with  every  increase  in  the  amount  of  a  commodity  offered  for  sale  its 

marginal  utility  falls,  and  as  with  evei-y  fall  ui  the  marginal  utility  there  is  a 

all  in  the  price  that  can  be  got  for  the  whole  of  the  commodity,  and  not  for 


INTRODUCTORY.  109 

The  discomnidHity  or  disutility  of  labour  may  arise  from 
l)odily  or  mental  fatigue,  or  from  its  being  carried  on  in  un- 
healthy surroundings,  or  with  unwelcome  associates,  or  from 
its  occupying  time  that  is  wanted  for  pastime,  or  for  social  or 
intellectual  pursuits.  But  whatever  be  the  form  of  the  dis- 
commodity, its  intensity  nearly  always  increases  with  the 
severity  and  the  duration  of  labour;  even  though  at  the 
outset  the  exertion  may  have  been  pleasurable. 

--^s  the  price  required  to  attract  purchasers ^f or  any  given 
amount  of  a  commodity,  was  called  the'J)emand^rice  for  that  ]^ 
amount;  so  the  price  required  to  call  forth  the  exertion  neces-  ' 
sary  for  producing  any  given  amount  of  a  commodity,  may  be 
called  the  i  Supply  '^  price  for  that  amount.     And  i 

if  for  the  moment  we  assumed  that  production  lance  of  de- 
depended  solely  upon  the  exertions  of  a  certain  mandand 

"^       ^  .  .  J    supply. 

number  of  workers,  already  in  existence  and 
trained  for  their  work,  we  should  get  a  list  of  supply  prices 
(a  Supply  Schedule)  corresponding  to  the  list  of  demand 
prices  (or  Demand  Schedule)  which  we  have  already  con- 
sidered. This  list  would  set  forth  theoretically  in  one  column 
of  figures  various  amounts  of  exertion  and  therefore  of  pro- 
duction; and  in  a  parallel  column  the  prices  which  must  be 
paid  to  induce  the  available  workers  to  put  forth  these 
amounts  of  exertion. 

§  3.  But  this  simple  method  of  treating  the  supply  of 
labour  of  any  kind,  and  consequently  the  supply  of  goods 
made  by  that  labour,  assumes  that  the  number  of  those  who 
are  qualified  for  it  is  fixed ;  and  that  assumption  can  be  made 
only  for  short  periods  of  time.     The  total  numbers  of   the 

the  last  part  only ;  so  it  is  with  regard  to  the  supply  of  labour.  If  there  is  aii 
increase  iu  the  amount  required  of  a  certain  kind  of  work,  and  some  of  it  has 
to  be  done  with  greater  difficulty,  so  as  to  cause  a  greater  disutility,  then  a 
higher  price  must  be  paid  for  this;  and  the  price  of  all  the  rest  of  the  work 
will  rise  at  the  same  time.  This  surplus  price  which  has  to  be  paid  to  all  the 
rest  of  the  labour  in  some  respects  resembles  Rent,  as  will  be  more  clearly  / 
seen  hereafter. 


110  BOOK   IV.    CH.    I.   §   3. 

people  change  under  the  action  of  many  causes,  among  which 

changes  the  average  earnings  of  labour  take  a 

difficulty  of       prominent  place ;   though  their  influence  on  the 

this  problem      growth  of  numbers  is  fitful  and  irres^ular.     But 

in  real  life.  »  ,         ,  ° 

the  distribution  of  the  population  between  different 
trades  is  more  subject  to  the  influence  of  economic  causes.  In 
the  long  run  the  supply  of  labour  in  any  trade  is  adapted  more 
or  less  closely  to  the  demand  for  it :  parents  bring  up  their 
children  to  the  most  advantageous  occupations  to  which  they 
have  access;  that  is  to  those  that  offer  the  best  reward,  in 
wages  and  other  advantages,  in  return  for  labour  that  is  not 
too  severe  in  quantity  or  character,  and  for  skill  that  is  not 
too  hard  to  be  acquired.  This  adjustment  however  between 
demand  and  supply  can  never  be  perfect;  fluctuations  of 
demand  may  make  it  much  greater  or  much  less  for  a  while, 
even  for  many  years,  than  would  have  been  just  sufficient  to 
induce  parents  to  select  that  trade  rather  than  some  other 
of  the  same  class  for  their  children.  Although  therefore  the 
reward  to  be  had  for  any  kind  of  work  at  any  time  does 
stand  in  some  relation  to  the  difficulty  of  acquiring  the  ne- 
cessary skill  combined  with  the  exertion,  the  disagreeableness, 
the  waste  of  leisure,  etc.  involved  in  the  work  itself ;  yet  this 
correspondence  is  liable  to  great  disturbances.  The  study  of 
these  disturbances  is  a  difficult  task;  and  it  will  occupy  us 
much  in  later  stages  of  our  work,  and  especially  in  the  fifth 
and  sixth  Books.  But  the  present  Book  is  mainly  descriptive 
and  raises  few  difficult  problems. 


CHAPTER  II. 

THE    FERTILITY   OF    LAND. 

§  1.  The  requisites  of  production  are  commonly  spoken 
of  as   land,    labour  and  capital:    those  material  , 

thingfs  which  owe  their  usefulness  to  human 
labour  being  classed  under  capital,  and  those  which  owe 
nothing  to  it  being  classed  as  land.  The  distinction  is  ob- 
viously a  loose  one :  for  bricks  are  but  pieces  of  earth  slightly 
worked  up;  and  the  soil  of  old  settled  countries  has  for  the 
greater  part  been  worked  over  many  times  by  man,  and  owes 
to  him  its  present  form.  There  is  however  a  scientific  prin- 
ciple underlying  the  distinction.  While  man  has  no  power 
of  creating  matter,  he  creates  utilities  by  putting  things  into 
a  useful  form^;  and  the  utilities  made  by  him  can  be  in- 
creased in  supply  if  there  is  an  increased  demand  for  them: 
they  have  a  supply  price.  But  there  are  other  utilities  over 
the  supply  of  which  he  has  no  control,  they  are  given  as  a 
fixed  quantity  by  nature  and  have  therefore  no  supply  price. 
The  "term  "land"  has  been  extended  by  economists  so  as  to 
include  the  permanent  sources  of  these  utilities^;  whether  they 
are  found  in  land,  as  the  term  is  commonly  used,  or  in  seas 
and  rivers,  in  sunshine  and  rain,  in  winds  and  waterfalls. 

When  we  have  inquired  what  it  is  that  marks  ofi"  land 
from  those  material  things  which  we  regard  as  products 
of  the  land,  we  shall  find  that  the  fundamental  attribute  of 
land  is  its  extension.     The  right  to  use  a  piece  of  land  gives 

1  See  Book  ii.  Chapter  iii. 

2  In  Ricardo's  famous  phrase  "the  original  and  indestructible  powers  of 
the  soil." 


112  BOOK  IV.    CH.  II.   §§1,  2. 

command  over  a  certain  space — a  certain  part  of  the  earth's 
surface.  The  area  of  the  earth  is  fixed :  the  geometric  re- 
lations in  which- any  particular  part  of  it  stands  to  other 
parts  are  fixed.  IMan  has  no  control  over  them ;  they  are 
wholly  unafFectea  by  demand ;  they  have  no  cost  of  pro- 
ductiojp,  there  is  no  supply  price  at  which  they  can  be  pro- 
duced. \The  use  of  a  certain  area  of  the  earth's  surface  is  a 
primary  *  condition  of  anything  that  man  can  do;  it  gives 
him  room  for  his  own  actions,  with  the  enjoyment  of  the 
heat  and  the  light,  the  air  and  the  rain  which  nature  assigns 
to  that  area;  and  it  determines  his  distance  from,  and  in  a 
great  measure  his  relations  to,  other  things  and  other  persons. 

Some  parts  of  the  earth's  surface  contribute  to  production 
chiefly  by  the  services  which  they  render  to  the  navigator : 
others  are  of  chief  value  to  the  miner ;  others — though  this 
selection  is  made  by  man  rather  than  by  nature — to  the 
builder.  But  when  the  productiveness  of  land  is  spoken  of 
our  first  thoughts  turn  to  its  agricultural  use. 

§  2.  To  the  agriculturist  an  area  of  land  is  the  means  of 
supporting  a  certain  amount  of  vegetable,  and  perhaps  ulti- 
mately of  animal  life.  For  this  purpose  the  soil  must  have 
certain  mechanical  and  chemical  qualities. 

Mechanically,  it  must  be  so  far  yielding  that  the  fine  roots 
Conditions  of  ^^  plants  can  push  their  way  freely  in  it ;  and 
fertility,  me-  yet  it  must  be  firm  enough  to  give  them  a  good 
hold.  The  action  of  fresh  air  and  water  and 
of  frosts  are  nature's  tillage  of  the  soil;  but  man  gives 
great  aid  in  this  mechanical  preparation  of  the  soil.  The 
chief  purpose  of  his  tillage  is  to  enable  the  soil  to  hold  plant 
roots  gently  but  firmly,  and  to  enable  the  air  and  water  to 
move  about  freely  in  it.  Even  when  he  manures  the  ground 
he  has  this  mechanical  preparation  in  view.  For  farmyard 
manure  benefits  clay  soils  by  subdividing  them  and  making 
them  lighter  and  more  open,  no  less  than  by  enriching  them 
chemically;    while   to   sandy   soils  it  gives   a   much   needed 


THE   FERTILITY   OF   LAND.  113 

finnness  of  texture,  and  helps  them,  mechanically  as  well  as 
chemically,  to  hold  the  materials  of  plant  food  which  would 
otherwise  be  quickly  washed  out  of  them. 

Chemically  the  soil  must  have  the  inorganic  elements  that 
the  plant  wants  in  a  form  palatable  to  it.     The       .   , 

■^  ^  ^  and  chemical. 

greater  part  of  the  bulk  of  the  plant  is  made  up 
of  so-called  "organic  compounds";  that  is,  compounds  of  carbon 
chiefly  with  oxygen,  hydrogen  and  nitrogen;  and  of  these  it 
obtains  by  far  the  greater  part  from  air  and  water.  Only  a 
small  fraction  (somewhere  about  a  twentieth  on  an  average) 
of  its  dry  bulk  consists  of  mineral  matter  that  it  cannot  get 
except  from  the  soil.  And  as  most  soils  have  given  them  by 
nature  at  least  some  small  quantities  of  all  the  mineral  sub- 
stances that  are  necessary  for  plant  life,  they  can  support 
some  sort  of  vegetation  without  human  aid.  Often  however 
they  have  but  very  scanty  provision  of  one  or  two  necessary 
elements  ;  and  then  man  can  turn  a  barren  into  a  very  fertile 
soil  by  adding  a  small  quantity  of  just  those  things  that  are 
needed;  using  in  most  cases  either  lime  in  some  of  its  many 
forms,  or  those  artificial  manures  which  modern  chemical 
science  has  provided  in  great  variety. 

By  these  means  the  fertility  of  the  soil  can  be  brought 
under  man's  control.     He  can  by  sufficient  labour 
make  almost  any  land  bear  large  crops.     He  can  of  ^altering'^the 
prepare  the  soil  mechanically  and  chemically  for  character  of 
whatever   crops   he  intends  to  grow  next.     He 
can  adapt  his  crops  to  the  nature  of  the  soil  and   to   one 
another;   selecting   such  a  rotation  that  each  will  leave  the 
land  in  such  a  state,  and  at  such  a  time  of  year,  that  it  can  be 
worked  up  easily  and  without  loss  of  time  into  a  suitable  seed 
bed  for  the  coming  crop.     He  can  even  permanently  alter 
the  nature  of  the  soil  by  draining  it,  or  by  mixing  with  it 
other  soil  that  will  supplement  its  deficiencies. 

All  these  changes  are  likely  to  be  carried  out  more  ex- 
tensively and  thoroughly  in  the  future  than  in  the  past.     But 
M.  8 


114  BOOK  IV.   CH.  II.  §  2. 

even  now  the  greater  part  of  the  soil  in  old  countries  owes 
much  of  its  character  to  human  action;  all  that  lies  just 
below  the  surface  has  in  it  a  large  element  of  capital,  the 
produce  of  man's  past  labour  :  the  inherent,  or  indestructible, 
properties  of  the  soil,  the  free  gifts  of  nature,  have  been 
largely  modified;  partly  robbed  and  partly  added  to  by  the 
work  of  many  generations  of  men. 

But  it  is  different  with  that  which  is  above  the  surface. 
Every  acre  has  given  to  it  by  nature  an  annual  income  of 
heat  and  light,  of  air  and  moisture ;  and  OA^er  these  man  has 
but  little  control.  He  may  indeed  alter  the  climate  a  little 
by  extensive  drainage  works  or  by  planting  forests,  or  cutting 
them  down.  But,  on  the  whole,  the  action  of  the  sun  and 
the  Avind  and  the  rain  are  an  annuit^^xed  by  nature  for  each 
plot  of  land.  Ownership  of  the  land  gives  possession  of  this 
annuity  :  and  it  also  gives  the  space  required  for  the  life  and 
action  of  vegetables  and  animals;  the  value  of  this  space 
being  much  affected  by  its  geographical  position. 

We  may  then  continue  to  use  the  ordinary  distinction 
Ori  in  d  between  the  original  or  inherent  properties, 
artificial  pro-  which  the  land  derives  from  nature,  and  the 
artificial  properties  which  it  owes  to  human 
action ;  provided  we  remember  tlrart""ttie  first  include  the 
space-relations  of  the  plot  in  question,  and  the  annuity  that 
nature  has  given  it  of  sunlight  and  air  and  rain;  and  that  in 
many  cases  these  are  the  chief  of  the  inherent  properties  of 
the  soil.  It  is  chiefly  from  them  that  the  ownership  of 
agricultural  land  derives  its  peculiar  significance,  and  the 
Theory  of  Rent  its  special  character.  But  the  question  how 
far  the  fertility  of  any  soil  is  due  to  the  original  properties 
given  to  it  by  nature,  and  how  far  to  the  changes  in  it  made 
by  man,  cannot  be  fully  discussed  without  taking  account  of 
the  kind  of  produce  raised  from  it\ 

1  Principles  IV.  ii.  contains  some  further  information  as  to  the  methods 
and  results  of  high  cultivation  as  applied  to  different  soils  and  different 
crops. 


CHAPTER  III. 

THE   FERTILITY    OF   LAND,    CONTINUED.      THE   LAW   OF 
DIMINISHING   RETURN. 

§  1.     The  Law  of  Diminishing  Return   may  be  provi- 

(sjonally  stated  thus : 
An  increase  in  the  capital  and  labour  applied  in  the  cul- 
tivation  of   land   causes  in  general  a  less  than  Provisional 
proportionate  increase  in  the  amount  of  produce  statement  of 
raised,  unless  it  happens   to   coincide   with   an  Diminishing! 
improvement  in  the  arts  of  agriculture. 

We  learn  from  history  and  by  observation  that  every 
agriculturist  in  every  age  and  clime  desires  to  have  the  use 
of  a  good  deal  of  land;  and  that  when  he  cannot  get  it 
freely,  he  will  pay  for  it,  if  he  has  the  means.  If  he  thought 
that  he  would  get  as  good  results  by  applying  all  his  capital 
and  labour  to  a  very  small  piece,  he  would  not  pay  for  any 
but  a  very  snaall  piece. 

When   land   that    requires   no  clearing  is  to  be  had  for 
nothing,  every  one  uses  just  that  quantity  which  he  thinks 
will  give   his   capital   and   labour   the   largest   return.     His 
cultivation  is  "extensive,"  not  "intensive."     He  does  not  aim 
at  getting  many  bushels  of  corn  from  any  one  acre,  for  then 
he   would    cultivate   only   a   few   acres.     His  purpose   is   to 
get  as  large  a  total  crop  as  possible  with  a  given  j^  .^  i^g^sed  on 
expenditure  of  seed  and  labour;  and  therefore  general  expe- 
he  sows  as  many  acres  as  he  can  manage  to  bring 
under  a  light  cultivation.     Of  course  he  may  go  too  far:  he 
may   spread  his ,  work   over  so  large  an  area  that  he  would 
gain  by   concentrating  his   capital   and  labour  on  a  smaller 

8—2 


\ 


116  BOOK  IV.    CH.  III.   §  1, 

space;  and  under  these  circumstances  if  he  could  get  com- 
mand over  more  capital  and  labour  so  as  to  apply  more  to 
each  acre,  the  land  would  give  him  an  Increasing  Return; 
that  is,  an  extra  return  larger  in  proportion  than  it  gives  to 
his  present  expenditure,  ^^ut  if  he  has  made  his  calculations 
rightly,  he  is  using  just  so  much  ground  as  will  give  him  the 
highest  return;  and  he  would  lose  by  concentrating  his  capital 
and  labour  on  a  smaller  area.  If  he  had  command  over  more 
capital  and  labour  and  were  to  apply  more  to  his  present 
land,  he  would  gain  less  than  he  would  by  taking  up  more 
land;  he  would  get  a  Diminishing  IlETURN».ihat  is,  an  extra 
return  smaller  in  proportion  than  he  gets  for  the  last  applica- 
tions of  capital  and  labour  that  he  now  makes,  provided  of 
course  that  there  is  meanwhile  no  perceptible  improvement 
in  his  agricultural  skill/VAs  his  sons  grow  up  they  will  have 
more  capital  and  labour  to  apply  to  land;  and  in  order  to  avoid 
obtaining  a  Diminishing  Return,  they  will  want  to  cultivate 
more  land.  But  perhaps  by  this  time  all  the  neighbouring 
land  is  already  taken  up,  and  in  order  to  get  more  they  must 
buy  it  or  pay  a  rent  for  the  use  of  it,  or  migrate  where  they 
can  get  it  for  nothing. 
i  This  tendency  to  a  Diminishing  Return  was  the  cause  of 
I  Abraham's  parting  from  Lot,  and  of  most  of  the  migrations 
1  i  of  which  history  tells.     And  wherever  the  right 

mf  TaSons  ^°  I  ^^  Cultivate  land  is  much  in  request,  we  may  be 
I  sure  that  the  tendency  to  a  Diminishing  Return 
is  in  full  operation.  Were  it  not  for  this  tendency  every 
farmer  could  save  nearly  the  whole  of  his  rent  by  giving  up 
all  but  a  small  piece  of  his  land,  and  bestowing  all  his  capital 
and  labour  on  that.  If  all  the  capital  and  labour  which  he 
would  in  that  case  apply  to  it,  gave  as  good  a  return  in 
proportion  as  that  which  he  now  applies  to  it,  he  would  get 
from  that  plot  as  large  a  produce  as  he  now  gets  from  his 
whole  farm,  and  would  make  a  net  gain  of  all  his  rent  save 
that  of  the  little  plot  that  he  retained. 


THE   FERTILITY   OF   LAND.  117 

\lt  may  be  conceded  that  the  ambition  of  farmers  often 
leads  them  to  take  more  land  than  they  can  properly  manage. 
But  when  we  say  that  a  farmer  would  gain  by  .,      ,  ^,     , 

/  o  J     Its  relation  to 

applying  his  capital  and  labour  to  a  smaller  area,  modern 
we  do  not  necessarily  mean  that  he  would  get  ^^"^'"S* 
a  larger  gross  produce;  we  may  mean  only  that  the  saving 
in  rent  would  more  than  counter-balance  any  probable  dimi- 
nution of  the  total  returns  that  he  got  from  the  land.  \  If  a 
farmer  pays  a  fourth  of  his  produce  as  rent,  he  would  gain 
by  concentrating  his  capital  and  labour  on  less  land,  provided 
the  extra  capital  and  labour  applied  to  each  acre  gave  any- 
thing more  than  three-fourths  as  good  a  return  in  proportion 
as  he  got  from  his  earlier  expenditure. 

Again,  it  may  be  granted  that  much  land,  even  in  a 
country  as  advanced  as  England,  is  so  unskilfully  cultivated 
that  it  could  be  made  to  give  more  than  double  its  present 
gross  produce  if  twice  the  present  capital  and  labour  were 
applied  to  it  skilfully.  Very  likely  those  are  right  who 
maintain  that  if  all  English  farmers  were  as  able,  wise  and 
energetic  as  the  best  are,  they  might  profitably  apply  twice 
the  capital  and  labour  that  is  now  applied.  Assuming  rent 
to  be  one  fourth  of  the  present  produce,  they  might  get  seven 
hundredweight  of  produce  for  every  four  that  they  now  get: 
it  is  conceivable  that  with  still  more  improved  methods  they 
might  get  eight  hundredweight,  or  even  more.  But  this  does 
not  prove  that,  as  things  are,  further  capital  and  labour 
could  obtain  from  land  an  Increasing  Return.  The  fact 
remains  that,  taking  farmers  as  they  are,  with  the  skill  and 
energy  which  they  actually  have,  we  find  as  the  result  of 
universal  observation  that  there  is  not  open  to  them  a  short 
road  to  riches  by  giving  up  a  great  part  of  their  land,  by 
concentrating  all  their  capital  and  labour  on  the  remainder, 
and  saving  for  their  own  pockets  the  rent  of  all  but  that 
remainder.  The  reason  why  they  cannot  do  this  is  told  in 
the  Law  of  Diminishing  Return. 


118  BOOK  IV.   CH.  III.   §§1,2. 

It  is  important  to  remember  that  the  Return  to  capital 

and  labour  of  which  the  Law  speaks,  is  measured 

lates  to  the       by  the  amount  of  the  produce  raised  independently 

amount  of  the  ^^f  ^^^  chanojes  that  may  meanwhile  take  place  in 

produce.  .  .  . 

the  price  of  produce ;  such,  for  instance,  as  might 
occur  if  a  new  railway  had  been  made  in  the  neighbourhood, 
or  a  new  town  population  had  grown  up  close  by.  Such 
changes  will  be  of  vital  importance  when  we  come  to  draw 
inferences  from  the  Law  of  Diminishing  Return,  and  par- 
ticularly when  we  discuss  the  pressure  of  increasing  population 
on  the  means  of  subsistence's.  But  they  have  no  bearing  on 
the  Law  itself,  because  that  has^to  do  not  with  the  value  of 
the  produce  raised,  but  only  with  its  amount?\^^ 

We  may  now  formulate  the  limitations  which  were  im- 
plied under  the  words  "in  general"  in  our  provisional  state- 
ment of  the  Law.  The  Law  is  a  statement  of  a  tendency 
which  may  indeed  be  held  in  check  for  a  time  by  improve- 
ments in  the  arts  of  production  and  by  the  fitful  course  of  the 
development  of  the  full  powers  of  the  soil;  but  which  must 
ultimately  become  irresistible  if  the  demand  for  produce 
should  increase  without  limit.  Our  final  statement  of  the 
Law  may  then  be  divided  into  two  parts,  thus: — 

Firstly,  although  an  improvement  in  the  arts  of  agricul- 
ture may  raise  the  return  which  land  generally 

Final  state-  «.      ,  .  i-  •      i  i 

mentofthe        afiords   to  any  given   amount    of    capital    and 
*^'  labour;    and   although   the    capital   and    labour 

already  applied  to  any  piece  of  land  may  have  been  so  in- 
adequate for  the  development  of  its  full  powers,  that  some 
further  expenditure  on  it  even  with  the  existing  arts  of 
agriculture  would  give  a  more  than  proportionate  return; 
yet  these  conditions  are  rare  in  an  old  country :  and,  except 
when  they  are  present,  the  application  of  increased  capital 
and  labour  to  land  will  add  a  less  than  proportionate  amount 
to  the  produce  raised,  unless  there  be  meanwhile  an  increase 
in  the  skill  of  the  individual  cultivator.     Secondly,  whatever 


THE    FERTILITY    OF   LAND.  119 

may  be  the  future  developments  of  the  arts  of  agriculture,  a 
continued  increase  in  the  application  of  capital  and  labour  to  / 
land   must   ultimately  result   in  a   diminution  of  the  extra  t 
produce  which  can  be  obtained  by  a  given  extra  amount  of  i 
capital  and  labour. 

§  2.     Making  use  of  a  term  suggested  by  James  Mill,  we 
may  regard   the   capital    and  labour  applied  to  ^  j^^^^  ^^ 
land  as  consisting  of  equal  successive  Doses'.    As  capital  and  / 
we  have  seen,  the  return  to  the  first  few  doses 
may  perhaps  be  small  and  a  greater  number  of  doses  may  get 
a  larger  proportionate  return ;  the  return  to  successive  doses 
may  even  in  exceptional  cases  alternately  rise  and  fall.     But 
our  law  states  that  sooner  or  later  (it  being  always  supposed 
that  there  is  meanwhile  no  change  in  the  arts  of  cultiva- 
tion) a  point  will  be  reached  after  which  all  further  doses 
will  obtain  a  less  proportionate  return  than  the   preceding 
doses. 

The  dose  which  only  just  remunerates  the  cultivator  may 
be  said  to  be  the  marginal  dose,  and  the  return 

to  it  the  MARGINAL  RETURN.       If  there  happens  to   marginal  re-^^' 

be  in  the  nei^rhbourhood  land  that  is  cultivated  *"':".'  margin  of 

^  ,  cultivation. 

but  only  just  pays  its  expenses,  and  so  gives  no 
surplus  for  rent,  we  may  suppose  this  dose  applied  to  it. 
We  can  then  say  that  the  dose  applied  to  it  is  applied  to 
land  on  the  margin  of  cultivation,  and  this  way  of  speaking 
has  the  advantage  of  simplicity.  But  it  is  not  necessary 
for  the  argument  to  suppose  that  there  is  any  such  land: 
what  we  want  to  fix  our  minds  on  is  the  return  to  the 
marginal  dose:  whether  it  happens  to  be  applied  to  poor 
land  or  to  rich  does  not  matter;  all  that  is  necessary  is  that  it 


1  The  phrase  a  Dose  of  Capital  and  Labour  may  be  taken  provisionally  to 
mean  £1  of  outlay  distributed  according  to  the  exigencies  of  the  case  between 
the  hire  of  labour,  the  payment  for  the  use,  the  wear  and  tear  of  capital,  and 
lastly  management.  Some  difficulties  connected  with  the  phrase  are  dis- 
cussed in  a  Note  at  the  end  of  Pnnciples,  IV.  in. 


120  BOOK  IV.   CH.  III.   §  2. 

should  be  the  last  dose  which  can  profitably  be  applied  to  that 
land^. 

When  we  speak  of  the  marginal,  or  the  "last"  dose  applied 

to  the  land,  we  do  not  mean  the  last  in  time,  we 

dos^e  Tot^^'ne-  Hiean  that  dose  which  is  on  the  margin  of  pro- 

cessariiy     the  fitable  expenditure:  that  is,  which  is  applied  so 

last  in  time.  .  ^  .  ^  t  , 

as  just  to  give  the  ordinary  returns  to  the  capital 
and  labour  of  the  cultivator,  without  affording  any  surplus. 
To  take  a  concrete  instance,  we  may  suppose  a  farmer  to  be 
thinking  of  sending  the  hoers  over  a  field  once  more;  and 
after  a  little  hesitation  he  decides  that  it  is  worth  his  while, 
but  only  just  worth  his  while  to  do  it.  The  dose  of  capital 
and  labour  spent  on  doing  it,  is  then  the  last  dose  in  our 
present  sense,  though  there  are  many  doses  still  to  be  applied 
in  reaping  the  crop.  Of  course  the  return  to  this  last  dose 
fcannot  be  separated  from  the  others;  but  we  ascribe  to  it  all 
that  part  of  the  produce  which  we  believe  would  not  have 
been  produced  if  the  farmer  had  decided  against  the  extra 
hoeing.  Since  the  return  to  the  marginal  dose  (it  does  not 
matter  whether  the  dose  is  applied  to  poor  land  or  rich) 
Surplus  Pro-  j^st  remunerates  the  cultivator,  it  follows  that  he 
^^^^-  will  be  just  remunerated  for  the  whole  of   his 

capital  and  labour  by  as  many  times  the  marginal  return  as  he 
has  applied  doses  in  all.  "Whatever  he  gets  in  excess  of  this 
is  the  Surplus  Produce  of  the  land.  This  surplus  is  re- 
tained by  the  cultivator  if  he  owns  the  land  himself^. 

1  Kicardo  was  well  aware  of  this :  though  he  did  not  emphasize  it  enough. 
Those  opponents  of  his  doctrine  who  have  supposed  that  it  has  no  applica- 
tion to  places  where  all  the  land  pays  a  rent,  have  mistaken  the  nature  of  his 
argument. 

2  Let  us  seek  a  graphical  illustration.  If  on  any  given  field  there  were 
expended  a  capital  of  £50,  a  certain  amount  of  produce  would  be  raised  from 
it:  a  certain  amovmt  larger  than  the  former  would  be  raised  if  there  were 
expended  on  it  a  capital  of  £51.  The  difference  between  these  two  amounts 
may  be  regarded  as  the  produce  due  to  the  fifty-first  pound ;  and  if  we  suppose 
the  capital  to  be  applied  in  successive  doses  of  £1  each  we  may  speak  of  this 
difference  as  the  produce  due  to  the  fifty-first  dose.    Let  the  doses  be  repre- 


f 


THE   FERTILITY   OF   LAND.  121 

(This  Surplus  Produce  may,  under  certain  conditions, 
become  the  rent  which  the  owner  of  the  land  can  its  relation  to 
exact  from  the  tenant  for  its  use.  But,  as  we  ''^"*' 
shall  see  hereafter,  the  full  rent  of  a  farm  in  an  old  country- 
is  made  up  of  three  elements:  the  first  being  due  to  the  value 
of  the  soil  as  it  was  made  by  IJatmre;  the  second  to  impj^e- 
ments  made  in  it  by  man;  and  the  third,  which  is  often  the 
most  important  of  all,  to  the  growth  of  a  dense  and  rich 
population,  and  to  facilities  of  communication  by  public  roads, 
railroads,  &c,) 

In  an  old  country  it  is  seldom  possible  to  discover  what 
was  the  original  state  of  the  land  before  it  was  first  culti- 
vated. The  results  of  some  of  man's  work  are  for  good  and 
evil  fixed  in  the  land;  they  cannot  be  distinguished  from  the 
results  of  nature's  work,  but  must  be  counted  with  them. 
The  line  of  division  between  nature's  work  and  man's  work  is 
blurred,  and  must  be  drawn  more  or  less  arbitrarily.  But 
for  most  purposes  it  is  best  to  regard  the  first  difficulties  of 
coping  with  nature  as  pretty  well  conquered  before  we  begin 
to  reckon  the  farmer's  cultivation.     Thus  the  returns  that  we 

sented  in  order  by  successive  equal  divisions  of  the 
line  OD.  Let  there  now  be  drawn  from  the  division 
of  this  line  representing  the  fifty-first  dose  if,  a  line 
MP  at  right  angles  to  OD,  in  thickness  equal  to  the 
length  of  one  of  the  divisions,  and  such  that  its 
length  represents  the  amount  of  the  produce  due  to 
the  fifty-first  dose.  Suppose  this  done  for  each 
separate  division  up  to  that  corresponding  to  the 
last  dose  which  it  is  found  profitable  to  put  on  the 
land.  Let  this  last  dose  be  the  110th  at  Z),  and  DC  the  corresponding  return 
that  only  just  remunerates  the  farmer.  The  extremities  of  such  lines  will  lie 
on  a  curve  APG.  The  gross  produce  will  be  represented  by  the  sum  of  these 
lines:  i.e.  since  the  thickness  of  each  line  is  equal  to  the  length  of  the  division 
on  which  it  stands,  by  the  area  ODCA.  Let  CGH  be  drawn  parallel  to  DO., 
cutthig  PM  in  G;  then  MG  is  equal  to  CD;  and  since  DC  just  remunerates 
the  farmer  for  one  dose,  MG  will  just  remunerate  him  for  another:  and  so  for 
aU  the  portions  of  the  thick  vertical  lines  cut  off  between  OD  and  HC.  There- 
fore the  sum  of  these,  that  is,  the  area  ODCH,  represents  the  share  of  the 
produce  that  is  required  to  remunerate  him;  while  the  remainder,  AHGCPA, 
is  the  Surplus  Produce,  which  under  certain  conditions  becomes  the  rent. 


A' 

A 

>^ 

Fig.  (3). 
p 

G 

C 

h 

«                   [ 

> 

122  BOOK  IV.   CH.  III.  §§  3—4. 

count  as  due  to  the  first  doses  of  capital  and  labour  are 
generally  the  largest  of  all,  and  the  tendency  of  the  return  to 
diminish  shows  itself  at  once.  Having  English  agriculture 
chiefly  in  view,  we  may  fairly  take,  as  Ricardo  did,  this  as  the 
typical  case^. 

§  3.  There  is  no  absolute  measure  of  the  richness  or 
_  ,      f.    ,        fertility  of  land.     Even  if  there  be  no  chancre  in 

Order  of  rela-  «^  ^i 

tive  fertility  the  arts  of  production,  a  mere  increase  in  the 
wfth  circum-  demand  for  produce  may  invert  the  order  in 
stances.  which  two  adjacent  pieces   of  land  rank  as  re- 

gards fertility.  The  one  which  gives  the  smaller  produce, 
when  both  are  uncultivated,  or  when  the  cultivation  of  both 
is  equally  slight,  may  rise  above  the  other  and  justly  rank 
as  the  more  fertile  when  both  are  cultivated  with  equal 
thoroughness.^J!n  other  words,  many  of  those  lands  which  are 
the  least  fertile  when  cultivation  is  merely  extensi\;e,  become 
among  the  most  fertile  when  cultivation  is  intensive\ 

It  has  been  well  said  that  as  the  strength  of  a  cnain  is 
that  of  its  weakest  link,  so  fertility  is  limited  by  that  element 
in  which  it  is  most  deficient.  Those  who  are  in  a  hurry,  will 
reject  a  chain  which  has  one  or  two  very  weak  links,  however 
strong  the  rest  may  be;  and  prefer  to  it  a  much  slighter 
chain  that  has  no  flaw.  But  if  there  is  heavy  work  to  be 
done,  and  they  have  time  to  make  repairs,  they  will  set  the 
larger  chain  in  order,  and  then  its  strength  will  exceed  that 
of  the  other.  In  this  we  find  the  explanation  of  much  that 
is  apparently  strange  in  agricultural  history. 

The  first  settlers  in  a  new  country  generally  avoid  land 
^         .  which  does  not  lend  itself  to  immediate  culti- 

Favounte 

soils  of  early  vation.  They  are  often  repelled  by  the  very 
settlers.  luxuriance  of  natural  vegetation,  if  it  happens 

to  be  of  a  kind  that  they  do  not  want.     They  do  not  care  to 

1  That  is,  we  may  substitute  (fig.  3)  the  dotted  line  £A'  for  BA  and 
regard  A'BPC  as  the  typical  curve  for  the  return  to  capital  and  labour  applied 
ill  English  agriculture. 


THE   FERTILITY   OF   LAND.  123 

t 

plough  land  that  is  at  all  heavy,  however  rich  it  might 
become  if  thoroughly  worked.  They  will  have  nothing  to  do 
with  water-logged  land.  They  generally  select  light  land 
which  can  easily  be  worked  with  a  double  plough,  and  then 
they  sow  their  seed  broadly,  so  that  the  plants  when  they 
grow  up  may  have  plenty  of  light  and  air,  and  may  collect 
their  food  from  a  wide  area. 

We  cannot  then  call  one  piece  of  land  more  fertile  than 
another  till  we  know  something  about  the  skill  pertiiity  is  re- 
and  enterprise  of  its  cultivators,  and  the  amount  lative  to  place 
of  capital  and  labour  at  their  disposal ;  and  till 
we  know  whether  the  demand  for  produce  is  such  as  to  make 
intensive  cultivation  profitable    with    the   resources   at  their 
disposal.     If  it  is,  those  lands  will  be  the  most  fertile  which 
give  the  highest  average  returns   to  a  large  expenditure  of 
capital  and  labour ;  but  if  not,  those  will  be  the  most  fertile 
which  give  the  best  returns  to  the  first  few  doses.     The  term 
fertility  has  no  meaning  except  with  reference  to  the  special 
circumstances  of  a  particular  time  and  place. 

§  4.  But  further,  the  order  of  fertility  of  different  soils  is 
liable  to  be  changed  by  changes  in  the  methods  of  cultivation 
and  in  the  relative  values  of  different  crops.  Thus  when  at 
the  end  of  last  century  Mr  Coke  showed  how  to  grow  wheat 
well  on  light  soils  by  preparing  the  way  with  clover,  they  rose 
relatively  to  clay  soils;  and  now  though  they  are  still  some- 
times called  from  old  custom  "poor,"  some  of  them  have  a 
higher  value,  and  are  really  more  fertile,  than  much  of  the 
land  that  used  to  be  carefully  cultivated  while  many  of  the 
light  soils  were  left  in  a  state  of  nature. 

As  there  is  no  absolute  standard  for  fertility,  so  there  is 
none  of  srood  cultivation.     The  best  cultivation  ^     ^     .  . 

*='  Good  cultiva- 

in  the  richest  parts  of  the  Channel  Islands,  for  tion  a  relative 
instance,  involves  a  lavish  expenditure  of  capital    ^^"^' 
and  labour  on  each  acre :  for  they  are  near  good  markets  and 
have  a  monopoly  of  an  equable  and  early  climate.     If  left  to 


124  BOOK  IV.   CH.  III.  §§  5—6. 

nature,  the  land  would  not  be  very  fertile ;  for,  though  it  has 
many  virtues,  it  has  two  weak  links  (being  deficient  in  phos- 
phoric acid  and  potash).  But,  partly  by  the  aid  of  the  abund- 
ant seaweed  on  its  shores,  these  links  can  be  strengthened, 
and  the  chain  thus  becomes  exceptionally  strong.  Intense,  or 
as  it  is  ordinarily  called  in  England  "good"  cultivation,  will 
thus  raise  £100  worth  of  early  potatoes  from  a  single  acre. 
But  an  equal  expenditure  per  acre  by  the  farmer  in  Western 
America  would  ruin  him ;  relatively  to  his  circumstances  it 
would  not  be  good,  but  bad  cultivation  \ 
I  §  5.  The  statement  of  the  Law  of  Diminishing  Return  by 
I  Ricardo  and  other  English  economists  in  the  earlier  half  of 
■  this  century,  was  inexactly  worded.  They  stated  that  the 
first  settlers  in  a  new  country  invariably  chose  the  richest 
I  lands,  and  that  as  population  increased,  poorer  and  poorer 
/  soils  were  gradually  brought  under  cultivation,  speaking  care- 
lessly as  though  there  were  an  absolute  standard  of  fertility. 
But  as  we  have  already  seen,  where  land  is  free,  everyone 
chooses  that  which  is  best  adaptgdjor  his-own  purpose,  and 
that  which  will  give  him,  all  things  considered,  the  best  return 
for  his  capital  and  labour.\He  looks  out,  therefore,  foFland 
that  can  be  cultivated  at  once,  and  passes  by  land  that  has 
any  weak  links  in  the  chain  of  its  elements  of  fertility,  how- 
ever strong  it  may  be  in  some  other  links.  \,  But  besides 
having  to  avoid  malaria,  he  must  think  of  his  communication 
with  his  markets  and  the  base  of  his  resources ;  and  in  some 
cases  the  need  for  security  against  the  attacks  of  enemies  and 
wild  beasts  outweighs  all  other  considerations.  It  is  therefore 
not  to  be  expected  that  the  lands  which  were  first  chosen, 
should  turn  out  always  to  be  those  which  ultimately  come  to 
be  regarded  as  the  most  fertile.      Ricardo  did  not  consider 

1  The  changes  in  the  relative  fertUities  of  different  kinds  of  land,  which 
result  from  changes  in  the  arts  of  production  and  the  general  economic  condi- 
tion of  the  people  are  examined  a  good  deal  more  fully  and  with  the  aid  of 
graphic  illustrations  in  Principles,  IV.  in.  3,  4. 


THE   FERTILITY   OF   LAND.  125 

this  point,  and  thus  laid  himself  open  to  attacks  by  Carey  and  \ 
others,  which,  though  for  the  greater  part  based 
on  a  misinterpretation  of  his  position,  have  yet  standings  of 
some  solid  substance  in  them\  \Too  much  im-  Rjcardo's  doc- 

\  trine. 

portance  may  indeed  easily  be  attached  to  Carey's 
laboured  proof  that  soils  which  an  English  farmer  would  regard 
as  poor,  are  often  cultivated  before  neighbouring  soils  which 
he  would  regard  as  rich.\  For  this  fact  by  no  means  invali- 
dates the  statement  that  the  returns  which  a  farmer  will  get 
by  applying  extra  doses  of  capital  and  labour  to  land  already 
well  cultivated  will  be  less  than  those  which  he  got  for  the 
earlier  doses,  other  things  being  equal ;  that  is,  there  being  no 
change  in  his  methods  of  cultivation,  in  his  markets,  or  in  the 
other  conditions  by  which  he  is  surrounded.  \  The  practical 
importance  of  Carey's  doctrine  lies  in  its  bearing  on  the  con- 
ditions under  which  the  growth  of  population  tends  to  cause 
increased  pressure  on  the  means  of  subsistence.  V  --^' 

§  6.  Ricardo,  and  the  economists  of  his  tqpcie  generally, 
were  too  hasty  in  deducing  this  inference  from  the  Law  of 
Diminishing  Return.  They  did  not  allow  enough  for  the 
increase  of  strength  that  comes  from  organization.  They  paid 
very  little  heed  to  the  assistance  which  every  farmer  gets 
from  the  presence  of  neighbours  whether  agriculturists  or 
townspeople.     Even  if  most  of  his  neighbours  are  . 

engaged  like  himself  in  agriculture,  they  gradu-  Ricardo's  doc- 
ally  supply  him  with  good  roads,  and  other  means 
of  communication :  they  ^ve„  him  a  market  in  which  he  can 
buy  at  reasonable  terms  what  he  wants,  necessaries,  comforts 
and  luxuries  for  himself  and  his  family,  and  all  the  various 
requisites  for  his  farm  work :  they  surround  him  with  know- 
ledge :  medical  aid,  instruction  and  amusement  are  brought  to 
his  door;  his  mind  becomes  wider,  and  his  efficiency  is  in 
many  ways  increased.     And  if  the  neighbouring  market  town 


1  Ricardo's  and  Carey's  positions  on  this  question  are  studied  in  some 
detail  in  Principles,  IV.  iii.  5. 


126  BOOK  IV.  CH.  III.  §§  6,  7. 

expands  into  a  large  industrial  centre,  his  gain  is  much 
greater.  All  his  produce  will  be  worth  more;  some  things 
which  he  used  to  throw  away  will  fetch  a  good  price.  He 
will  find  new  openings  in  dairy  farming  and  market  gardening; 
and  with  a  larger  range  of  produce  he  will  make  use  of 
rotations  that  keep  his  land  always  active  without  denuding 
it  of  any  one  of  the  elements  that  are  necessary  for  its 
fertility. 

Of  the  way  in  which  organization  promotes  production, 
particularly  in  manufactures,  we  shall  have  to  speak  here- 
after. But  we  have  already  seen  enough  to  be  sure  that  even 
as  regards  agriculture  the  Law  of  Diminishing  Return  does 
not  apply  to  the  total  capital  and  labour  spent  in  a  district  as 
sharply  as  to  that  on  a  single  farm.  Even  when  cultivation 
has  reached  a  stage  after  which  each  successive  dose  applied 
to  a  field  would  get  a  less  return  than  the  preceding  dose,  it 
may  be  possible  for  an  increase  in  the  population  to  cause  a 
more  than  proportional  increase  in  the  means  of  subsistence. 
It  is  true  that  the  evil  day  is  only  deferred  :  but  it  is  deferred. 
'The  growth  of  population,  if  not  checked  by  other  causes, 
must  ultimately  be  checked  by  the  difficulty  of  obtaining  raw 
produce ;  but  in  spite  of  the  Law  of  Diminishing  Return,  the 
pressure  of  population  on  the  means  of  subsistence  may  be 
restrained  for  a  long  time  to  come  by  the  opening  up  of  new 
fields  of  supply,  by  the  cheapening  of  railway  and  steamship 
communication,  and  by  the  growth  of  organization  and  know- 
ledge. 

In  the  following  chapters  we  shall  have  much  to  say  about 
the  evil  effects  of  local  congestions  of  population  in  making  it 
difficult  to  get  fresh  air  and  light,  and  in  some  cases  fresh 
water.  Again,  natives  of  New  England  who  have  gone  to 
the  fertile  plains  of  the  West,  would  often  be  willing  to  barter 
part  of  their  heavy  crops  for  the  pure  water  which  the  barren 
granite  soil  of  their  old  homes  supplied ;  and  even  in  England 
there  are  many  places,  particularly  at  the  sea-side,  which  are 


'    THE   FERTILITY   OF  LAND.  127 

kept  poor  by  the  want  of  drinking  water.  Again,  the  natural 
beauties  of  a  place  of  fashionable  resort  have  a  direct  money- 
value  which  cannot  be  overlooked ;  but  it  requires  some  effort 
to  realize  the  true  value  to  men,  women  and  children  of  being 
able  to  stroll  amid  beautiful  and  various  scenery. 

§  7.  As  has  already  been  said  the  land  in  economic  phrase 
includes  rivers  and  the  sea.  In  river-fisheries,  the  extra 
returns  to  additional  doses  of  capital  and  labour  show  a 
rapid  diminution.  As  to  the  sea,  opinions  differ.  Its  volume 
is  vast,  and  fish  are  very  prolific ;  and  it  may  be  true,  as  some 
think,  that  a  practically  unlimited  supply  can  be  drawn  from 
the  sea  without  appreciably  affecting  the  numbers  that  remain 
there. 

The  produce  of  mines  again,  among  which  may  be 
reckoned    quarries    and    brickfields,    is    said    to  „^  , 

^     .,^^,  .     '.  The  return       i 

conform  to  the  Law  of  Diminishing  Return;  from  fisheries  I 
but  this  statement  is  misleading.  It  is  true  that  ^"  "^»"es.  | 
we  find  continually  increasing  difficulty  in  obtaining  a  further 
supply  of  minerals,  except  in  so  far  as  we  obtain  increased 
power  over  Nature's  stores  through  improvements  in  the  arts 
of  mining,  and  through  better  knowledge  of  the  contents  of  the 
earth's  crust  ;Wid  there  is  no  doubt  that,  other  things  being 
equal,  the  continued  application  of  capital  and  labour  to  mines 
will  result  in  a  diminishing  rate  of  yield.^But  this  yield  is 
not  a  net  yield,  like  the  Return  of  which  we  speak  in  the  Law 
of  Diminishing  Return.  That  Return  is  part  of  a  constantly 
/  recurring  income,  while  the  produce  of  mines  is  merely  a 
giving  up  of  their  stored-up  treasures.  The  produce  of  the 
field  is  something  other  than  the  soil ;  for  the  field,  properly 
cultivated,  retains  its  fertility,  but  the  produce  of  the  mine  is 
part  of  the  mine  itself. 

To  put  the  same  thing  in  another  way,  the  supply  of 
agricultural  produce  and  of  fish  is  a  perennial  stream;  mines 
are  as  it  were  Nature's  reservoir.  The  more  nearly  a  reservoir 
is  exhausted,  the  greater  is  the  labour  of  pumping  from  it; 


128  BOOK  IV.   CH.  III.   §  7. 

but  if  one  man  could  pump  it  out  in  ten  days,  ten  men  could 
pump  it  out  in  one  day:  and  when  once  empty,  it  would 
yield  no  more.  So  the  mines  that  are  being  opened  this 
year  might  just  as  easily  have  been  opened  many  years  ago: 
if  the  plans  had  been  properly  laid  in  advance,  and  the 
requisite  specialized  capital  and  skill  got  ready  for  the  work, 
ten  years'  supply  of  coal  might  have  been  raised  in  one  year 
without  any  increased  difficulty ;  and  when  a  vein  had  once 
given  up  its  treasure,  it  could  produce  no  more.  This  dif- 
ference is  illustrated  by  the  fact  that  the  rent  of  a  mine  is 
calculated  on  a  diflferent  principle  from  that  of  a  farm.  The 
farmer  contracts  to  give  back  the  land  as  rich  as  he  found  it: 
a  mining  company  cannot  do  this;  and  while  the  farmer's 
rent  is  reckoned  by  the  year,  mining  rent  consists  chiefly  of 
"royalties"  which  are  levied  in  proportion  to  the  stores  that 
I  are  taken  out  of  Nature's  storehouse. 

On  the  other  hand,  services  which  land  renders  to  man 
in  giving  him  S£ace  and  light  and  air  in  which  to 
from  building  1  live  and  work,  do  conform  strictly  to  the  Law  of 
groun  .  I  pijjiinigjiij^g  Return.    It  is  advantageous  to  apply 

a  constantly  increasing  capital  to  land  that  has  any  special 
advantages  of  situation,  natural  or  acquired.  Buildings  tower 
up  towards  the  sky;  natural  light  and  ventilation  are  sup- 
plemented by  artificial  means,  and  the  steam  lift  reduces  the 
disadvantages  of  the  highest  floors ;  and  for  this  expenditure 
there  is  a  Return  of  extra  convenience,  but  it  is  a  Diminishing 
Return.  However  great  the  ground  rent  may  be,  a  limit  is 
at  last  reached  after  which  it  is  better  to  pay  more  ground 
rent  for  a  larger  area  than  to  go  on  piling  up  storey  on  storey 
any  further ;  just  as  the  farmer  finds  that  at  last  a  stage  is 
reached  at  which  more  intensive  cultivation  will  not  pay  its 
expenses,  and  it  is  better  to  pay  more  rent  for  extra  land, 
than  to  face  the  diminution  in  the  Return  which  he  would 
get  by  applying  more  capital  and  labour  to  his  old  land. 


4 


CHAPTER   IV. 

THE   GROWTH   OF   POPULATION. 

§  1.  Man  is  the  chief  means  of  the  production  of  that 
wealth  of  which  he  is  himself  the  ultimate  aim ;  and  it  seems 
best  to  make  at  this  stage  some  study  of  the  growth  of  popu- 
lation in  nufti^ers,  in  strength  and  in  charg^er. 

In  the  animal  and  vegetable  world  the  growth  of  num- 
bers is  governed  simply  by  the  tendency  of  individuals  to 
propagate  their  species  on  the  one  hand,  and  on  the  other 
hand  by  the  struggle  for  life  which  thins  out  vast  numbers 
of  the  young  before  they  arrive  at  maturity.  In  the  human 
race  alone  the  conflict  of  these  two  opposing  forces  is  com- 
plicated by  the  influences  of  forethought  and  self-control,  of 
prudence  and  a  sense  of  duty. 

The  study  of  the  growth  of  population  is  often  spoken  of 
as  though  it  were  a  modern  one ;  but  in  a  more  or  less  vague 
form  it  has  occupied  the  attention  of  thoughtful  men  in  all 
ages  of  the  world.  We  may  however  confine  ourselves  here  to 
some  account  of  its  most  famous  student,  Malthus,  whose 
Essay  on  the  Principle  of  Population  is  the  starting  point  of 
11  modern  speculations  on  the  subject  K 

His  reasoning  consists  of  three  parts  which  must  be  kept 
istinct.    The  first  relates  to  the  supply  of  labour. 

T,  /.I  1         /.  r.  ^  Vi  Malthus. 

-By  a  caretul  study  oi  facts  he  proves  that  every 
people  of   whose  history  we  have  a  trustworthy  record,  has 
been  so  prolific  that  the  growth  of  its  numbers  would  have 
been  rapid  and  continuous  if  it  had  not  been  checked  either 

1  First  edition  1798 :  he  published  a  much  enlarged  and  improved  edition 
in  1803.  The  history  of  the  Doctrine  of  Population,  and  of  its  connection  with 
the  practical  needs  of  diflferent  nations  at  different  times,  is  sketched  in  Pnn- 
ciples,  IV.  III.  1,  2. 

AL  9 


130  BOOK  IV.   CH.  IV.  §§  1,  2. 

by  a  scarcity  of  the  necessaries  of  life,  or  some  other  cause, 
that  is,  by  disease,  by  war,  by  infanticide,  or  lastly  by  volun- 
tary restraint. 
(\.  His   second   position   relates   to   the  demand  for  labour. 

Like  the  first  it  is  supported  by  facts,  but  by  a  different  set 
of  facts.  He  shows  that  up  to  the  time  at  which  he  wrote 
no  country  (as  distinguished  from  a  city,  such  as  Rome  or 
Venice,)  had  been  able  to  obtain  an  abundant  supply  of  the 
necessaries  of  life  after  its  territory  had  become  very  thickly 
peopled.  The  produce  which  Nature  returns  to  the  work  of 
man  is  her  effective  demand  for  population :  and  he  shows 
that  up  to  this  time  a  rapid  increase  in  population,  when 
already  thick,  had  not  led  to  a  proportionate  increase  in  this 
demand. 

Thirdly,  he  draws  the  conclusion  that  what  had  been  in 
/^  ^  the  past,  was  likely  to  be  in  the  future  ;  and  that  the  growth 
^  of  population  would  be  checked  by  poverty  or  some  other 
cause  of  suffering,  unless  it  were  checked  by  voluntary  re- 
straint. He  therefore  urges  people  to  use  this  restraint,  and, 
while  leading  lives  of  moral  purity,  to  abstain  from  very  early 
marriages. 

The  changes  which  the  course  of  events  has  introduced 
into  the  doctrine  of  population  relate  chiefly  to  the  second  and 
third  steps  of  his  reasoning.  We  have  already  noticed  that  the 
English  economists  of  the  earlier  half  of  this  century  overrated 
the  tendency  of  an  increasing  population  to  press  upon  the 
means  of  subsistence.  It  was  indeed  not  their  fault  that  they 
could  not  foresee  the  past  developments  of  steam  transport  by 
land  and  by  sea,  which  have  enabled  Englishmen"6T  the  present 
generation  to  obtain  the  products  of  the  richest  lands  of  the 
earth  at  comparatively  small  cost.  But  the  fact  that  Malthus 
did  not  foresee  these  changes  makes  the  second  and  third  steps 
of  his  argument  antiquated  in  form ;  though  they  are  still 
in  a  great  measure  valid  in  substance.  We  may  then  proceed 
to  state  the  doctrine  of  population  in  its  modern  form. 


THE   GROWTH  OF  POPULATION.  131 

§  2.     The  growth  in  numbers  of  a  people  depends  firstly 
on  the  "natural  increase,"  that  is,  the  excess  of  Natural  in- 
their  births  over  their  deaths;  and  secondly  on  gratfon^"'^ "^*' 
migration. 

The  number  of  births  depends  chiefly  on  habits  relating 
to  marriage.  The  age  of  marriage  varies  with  the  climate, 
being  earlier  in  warm  climates  than  in  cold;  but  in  every  case 
the  longer  marriages  are  postponed  beyond  the  age  that  is 
natural  to  the  climate,  the  smaller  is  the  birth-rate.  Given 
the  climate,  the  average  age  of  marriage  depends 
chiefly  on  the  ease  with  which  young  people  can  ing  the  age  of 
establish  themselves,  and  support  a  family  accord-  "^^^"^s^- 
ing  to  the  standard  of  comfort  that  prevails  among  their 
friends  and  acquaintances ;  and  therefore  it  is  different  in 
diflterent  stations  of  life. 

In  the  middle  classes  a  man's  income  seldom  reaches  its 
maximum  till  he  is  forty  or  fifty  years  old;  and  „    .    . 

''         .  .  .  Variations  m 

the  expense  of  bringing  up  his  children  is  heavy  different 
and  lasts  for  many  years.  The  artisan  earns 
nearly  as  much  at  twenty-one  as  he  ever  does,  unless  he  rises 
to  a  responsible  post,  but  he  does  not  earn  much  before  he  is 
twenty-one:  his  children  are  likely  to  be  a  considerable  ex- 
pense to  him  till  about  the  age  of  fifteen ;  unless  they  are 
sent  into  a  factory,  where  they  may  pay  their  way  at  a  very 
early  age;  and  lastly  the  unskilled  labourer  earns  nearly  full 
wages  at  eighteen,  while  his  children  begin  to  pay  their  own 
expenses  very  early.  In  consequence,  the  average  age  at 
marriage  is  highest  among  the  middle  classes :  it  is  low 
among  the  artisans  and  lower  still  among  the  unskilled 
labourers. 

Unskilled  labourers,  when  not  so  poor  as  to  suffer  actual 
want  and  not  restrained  by  any  external  cause,  have  seldom, 
if  ever,  shown  a  lower  power  of  increase  than  that  of  doubling 
in  thirty  years;  that  is,  of  multiplying  a  million-fold  in  six 
hundred  years,  a  billion-fold  in  twelve  hundred :  and  hence  it 

9—2 


132  BOOK  IV.  CH.  IV.  §§  2 — 4. 

might  be  inferred  a  j)riori  that  their  increase  has  never  gone 
on  without  restraint  for  any  considerable  time.  This  in- 
ference is  confirmed  by  the  teaching  of  all  history.  Through- 
out Europe  during  the  Middle  Ages,  and  in  some  parts  of 
it  even  up  to  the  present  time,  unmarried  labourers  have 
usually  slept  in  the  farm-house  or  with  their  parents ;  while  a 
Hindrances  to  ^larried  pair  have  generally  required  a  house  for 
early marri-       themselves:  when  a  village  has  as  many  hands 

age  in  station-  ,  °  n  ••  . 

ary  rural  as  it  Can  well  employ,  the  number  oi  houses  is  not 

districts.  increased,  and  young  people  wait  as  best  they  can. 

There  are  many  parts  of  Europe  even  now  in  which  custom, 
exercising  almost  the  force  of  law,  prevents  more  than  one  son 
in  each  family  from  marrying;  he  is  generally  the  eldest,  but 
in  some  places  the  youngest:  if  any  other  son  marries,  he 
must  leave  the  village.  When  great  material  prosperity,  and 
the  absence  of  all  extreme  poverty  are  found  in  old-fashioned 
corners  of  the  Old  World,  the  explanation  generally  lies  in 
some  such  custom  as  this  with  all  its  evils  and  hardships. 

§  3.     In  this  respect  the  position  of  the  hired  agricultural 
labourer  has  changed  very  much.     The  towns  are 

Influence  of  i.  ii.i.ii  i-/. 

peasant  now  always  open  to  him  and  his  children ;  and  if 

properties.  j^^  betakes  himself  to  the  New  World  he  is  likely 
to  succeed  better  than  any  other  class  of  emigrants.  But  the 
gradual  rise  in  the  value  of  land  and  its  growing  scarcity  are 
tending  to  check  the  increase  of  population  in  some  districts 
in  which  the  system  of  peasant  properties  prevails ;  especially 
those  in  which  there  is  not  much  enterprise  for  opening  out 
new  trades  or  for  emigration,  and  parents  feel  that  the  social 
position  of  their  children  will  depend  on  the  amount  of  their 
land. 

On  the  other  hand  there  seem  to  be  no  conditions  more 
favourable  to  the  rapid  growth  of  numbers  than  those  of  the 
agricultural  districts  of  new  countries.  Land  is  to  be  had 
in  abundance,  railways  and  steamships  carry  away  the  produce 
of  the  land ;  and  they  bring  back  in  exchange  implements  of 


THE  GROWTH   OF   POPULATION.  133 

advanced  types,  and  many  of  the  comforts  and  luxuries  of  life. 
The  "farmer,"  as  the  peasant  proprietor  is  called  in  America, 
finds  therefore  that  a  large  family  is  not  a  burden,  but  an 
assistance  to  him.  He  and  they  live  healthy  out-of-door  lives; 
there  is  nothing  to  check,  but  everything  to  stimulate  the 
growth  of  numbers.  The  natural  increase  is  aided  by  immi- 
gration; and  thus,  in  spite  of  the  fact  that  some  classes  of  the 
inhabitants  of  large  cities  in  America  are,  it  is  said,  reluctant 
to  have  many  children,  the  population  has  increased  sixteen- 
fold  in  the  last  hundred  years. 

§  4.     The  growth  of  population  in  England  has  a  more 
clearly  defined  history  than  that  in  the  United  Population  in 
Kingdom,   and    we    shall    find    some   interest  in  England, 
noticing  its  chief  movements. 

The  restraints  on  the  increase  of  numbers  during  the 
Middle  Ages  were  the  same  in  England  as  else-  v>  t  t 
where.  In  England  as  elsewhere  the  religious  during  Middle 
orders  were  a  refuge  to  those  for  whom  no  estab-  ^^^* 
lishment  in  marriage  could  be  provided;  and  religious  celibacy 
while  undoubtedly  acting  in  some  measure  as  an  independent 
check  on  the  growth  of  population,  is  in  the  main  to  be 
regarded  rather  as  a  method  in  which  the  broad  natural 
forces  tending  to  restrain  population  expressed  themselves, 
than  as  an  addition  to  them.  Infectious  and  contagious 
diseases,  both  endemic  and  epidemic,  were  caused  by  dirty 
habits  of  life,  which  were  even  worse  in  England  than  in  the 
South  of  Europe ;  and  famines  were  caused  by  the  failures  of 
good  harvests  and  the  difficulties  of  communication,  though 
this  evil  was  less  in  England  than  elsewhere.  Country  life 
was,  as  elsewhere,  rigid  in  its  habits ;  young  people  found  it 
difficult  to  establish  themselves  until  some  other  married  pair 
had  passed  from  the  scene  and  made  a  vacancy  in  their  own 
parish ;  for,  though  artisans  and  domestic  retainers  moved 
about  a  good  deal,  migration  was  seldom  thought  of  by  an 
agricultural  labourer. 


134  BOOK  IV.   CH.  IV.  §§  4,  5. 

In  the  latter  half  of  the  seventeenth  and  the  first  half  of 
the  eighteenth  century  the  central  government 
and  eighteenth  exerted  itself  to  hinder  the  adjustment  of  the 
centuries.  supply  of   population  in  different  parts   of   the 

country  to  the  demand  for  it  by  Settlement  Laws,  which 
made  any  one  chargeable  to  a  parish  who  had  resided  there 
forty  days,  but  ordered  that  he  might  be  sent  home  by  force 
at  any  time  within  that  period.  Landlords  and  farmers  were 
so  eager  to  prevent  people  from  getting  a  "settlement"  in 
their  parish  that  they  put  great  difficulties  in  the  way  of 
building  cottages,  and  sometimes  even  razed  them  to  the 
ground.  In  consequence  the  agricultural  population  of  Eng- 
land was  stationary  during  the  hundred  years  ending  with 
1760;  while  the  manufactures  were  not  jet  sufficiently 
developed  to  absorb  large  numbers.  This  retardation  in  the 
growth  of  numbers  was  partly  caused  by,  and  partly  a  cause 
of,  a  rise  in  the  standard  of  living ;  a  chief  element  of  which 
was  an  increased  use  of  wheat  in  the  place  of  inferior  grains 
as  the  food  of  the  common  people. 

From  1760  onwards  those  who  could  not  establish  them- 
selves at  home  found  little  difficulty  in  getting  employment 
in  the  new  manufacturing  or  mining  districts,  where  the 
demand  for  workers  often  kept  the  local  authorities  from 
enforcing  the  removal  clauses  of  the  Settlement  Act.  To 
these  districts  young  people  resorted  freely,  and  the  birth- 
rate in  them  became  exceptionally  high ;  but  so  did  the  death- 
rate  also;  the  net  result  being  a  fairly  rapid  growth  of  popu- 
lation. At  the  end  of  the  century,  when  Malthus  wrote  his 
Essay,  the  Poor  Law  again  began  to  influence  the  age  of  mar- 
riage, but  this  time  in  the  direction  of  making  it  unduly  early. 
.  The  sufferings  of  the  working  classes  caused  by  a 

teenth  cen-  series  of  famines  and  by  the  French  War  made 
"'^'  some  measure  of  relief  necessary ;  and  the  need  of 

large  bodies  of  recruits  for  the  army  and  navy  was  an  ad- 
ditional inducement  to  tender-hearted  people  to  be  somewhat 


r 


THE   GROWTH   OF   POPULATION.  135 

liberal  in  their  allowances  to  a  large  family,  with  the  practical 
eifect  of  making  the  father  of  many  children  often  able  to 
procure  more  indulgences  for  himself  without  working  than 
he  could  have  got  by  hard  work  if  he  had  been  unmarried  or 
had  only  a  small  family.     Those  who  availed  themselves  most 
of  this  bounty,  were  naturally  the  laziest  and  meanest  of  the 
people,  those   with  least  self-respect  and  enterprise.     So  al- 
though  there   was    in    the    manufacturing   towns   a   fearful 
mortality,  particularly  of  infants,  the  quantity  of  the  people 
increased  fast;  but  its  quality  improved  little,  if  at  all,  till 
the   passing   of   the  New   Poor   Law    in    1834.     Since   that 
time  the  rapid  growth  of  the  town  population  has,  as  we  shall 
see  in  the  next   Chapter,   tended  to  increase  mortality;  but 
this  has  been  counteracted  by  the  growth  of  temperance,  of 
medical  knowledge,  of  sanitation  and  of  general  cleanliness. 
Emigration    has    increased,    the   age   of   marriage   has   been/ 
slightly  raised,  and  a  somewhat  less  proportion  of  the  whole! 
population  are  married;  but,  on  the  other  hand,  the  ratio  of  I 
births  to  a  marriage  has  risen ;  the  net  result  being  that  popu-  | 
lation  has  grown  nearly  steadily. 

§  5.    Early  in  this  century,  when  wages  were  low  and  wheat   I 
was   dear,   the  working   classes   generally  spent  Modern  causes   ! 
more  than  half  their  income  on  bread :  and  con-  affecting  mar-    ' 
sequently  a  rise  in  the  price  of  wheat  diminished  "^&e~''a*e- 
marriages  very  much  among  them ;  that  is,  it  diminished  very 
much  the  number  of  marriages  by  banns.     But  it  raised  the 
income  of  many  members  of  the  well-to-do  classes,  and  there- 
fore often  increased  the  number  of  marriages  by  license.    Since 
however  these  were  but  a  small  part  of  the  whole,  the  net 
effect  was  to  lower  the  marriage-rate.     But  as  time  went  on, 
the  price  of  wheat  fell  and  wages  rose,  till  now  the  working 
classes  spend  on  the  average  less  than  a  quarter  of  their  in- 
comes on  bread;  and  in  consequence  the  variations  of  com- 
mercial  prosperity   have   got   to   exercise    a    preponderating 
influence  on  the  marriage-rate. 


136  BOOK  IV.   CH.  IV.   §  5. 

Since  1873  though  the  average  real  income  of  the  popula- 
l  tion  of  England  has  indeed  been  increasing,  its  rate  of  in- 
crease   has    been    less   than   in   the   preceding   years.      But 
meanwhile  there  has  been  a  great  fall  of   prices,   and    con- 
sequently a  great  fall  in  the  money-incomes  of  many  classes 
of  society;  and  people  are  governed  in  their  calculations  as 
to  whether  they  can  afford  to  marry  or  not,  more  by  the 
money  income  which  they  expect  to  be  able  to  get,  than  by 
elaborate   calculations    of    changes  in  its    purchasing    power. 
The  standard  of  living  therefore  among  the  working  classes 
has   been   rising  rapidly,  perhaps  more  rapidly  than  at  any 
other  time  in  English  history  :  their  household  expenditure 
measured    in    money    has    remained    about    stationary,    and 
measured   in   goods   has    increased   very  fast.     The   English 
I  marriage-rate  fell  from  8-8  per  1000  in  1873,  to  7-1  in  1886, 
I  the   lowest   rate   that   has   occurred   since   civil   registration 
I  began ;  but  it  has  again  somewhat  risen  to  7*5  in  1895.^ 

1  The  latter  half  of  Principles  IV.  iv.  contams  a  good  many  statistical 
tables  relating  to  the  growth  of  population  in  England,  and  to  a  comparison  of 
the  birth,  death,  and  marriage-rates  of  different  countries  of  the  Western  world. 
It  is  seen  that  the  marriage-rate  is  generally  highest  where  the  number  of 
early  marriages  is  the  greatest;  and  so  also  is  the  fecundity  of  marriages. 
The  general  mortality  is  high  wherever  the  birth-rate  is  high.  The  marriage- 
rate,  the  birth-rate  and  the  death-rate  are  diminishing  in  almost  every  country ; 
in  spite  of  the  unexpected  fact  that  the  percentage  of  bridegrooms  who  are  not 
over  twenty-five  years  of  age  is  increasing  in  nearly  every  country,  for  which 
the  figures  are  given. 

Taking  the  present  population  of  the  world  at  one  and  a  half  thousand 
millions;  and  assuming  that  its  present  rate  of  increase  (about  8  per  1000 
annually,  see  Mr  Eavenstein's  paper  before  the  British  Association  in  1890) 
will  continue,  we  find  that  in  less  than  two  hundred  years  it  will  amount  to 
six  thousand  millions ;  or  at  the  rate  of  about  200  to  the  square  mile  of  fairly 
fertile  land.  But  if  as  is  probable  there  are  meanwhile  great  improvements 
in  the  arts  of  agriculture,  the  pressure  of  population  on  the  means  of  sub- 
sistence may  not  be  much  felt  during  those  two  centuries.  If  however  the 
same  rate  of  increase  be  continued  till  the  year  2400,  the  population  will  then 
be  1000  for  every  mile  of  fairly  fertile  land:  and,  so  far  as  we  can  see  now,  the 
diet  of  such  a  population  must  needs  be  in  the  main  vegetarian. 


CHAPTER  V. 


THE   HEALTH   AND   STRENGTH   OF   THE    POPULATION. 

§  1.  We  have  next  to  consider  the  conditions  on  which 
depend  health  and  strength,  physical,  mental  and  ^h  b  '  f 
moral.  They  are  the  basis  of  industrial  effici-  industrial  effi- 
ency,  on  which  the  production  of  material  wealth  ^^'^"'^y- 
depends ;  while  on  the  other  hand  the  chief  importance  of 
material  wealth  lies  in  the  fact  that,  when  wisely  used,  it 
increases  the  health  and  strength,  physical,  mental  and  moral 
of  the  human  race. 

In  many  occupations  industrial  efficiency  requires  little  else 
than  physical  vigour ;  that  is,  muscular  strength.  Physical 
a  good  constitution  and  energetic  habits.  In  strength, 
estimating  muscular,  or  indeed  any  other  kind  of  strength  for 
industrial  purposes,  we  must  take  account  of  the  number  of 
hours  in  the  day,  of  the  number  of  days  in  the  year,  and  the 
number  of  years  in  the  lifetime,  during  which  it  can  be 
exerted.  But  with  this  precaution  we  can  measure  a  man's 
muscular  exertion  by  the  number  of  feet  through  which  his 
work  would  raise  a  pound  weight,  if  it  were  applied  directly  to 
this  use;  or  in  other  words  by  the  number  of  "foot  pounds" 
of  work  that  he  does'. 

1  This  measure  can  be  applied  directly  to  most  kinds  of  navvies'  and  porters' 
work,  and  indirectly  to  many  kinds  of  agricultural  work.  In  a  controversy 
that  was  waged  after  the  great  agricultural  lock-out  as  to  the  relative  efl&ciency 
of  unskilled  labour  in  the  South  and  North  of  England,  the  most  trustworthy 
measure  was  found  in  the  number  of  tons  of  material  that  a  man  would  load 
into  a  cart  in  a  day. 


138  BOOK  IV.   CH.  V.   §§1,  2. 

In  backward  countries,  particularly  where  there  is  not 
much  use  of  horses  or  other  draught  animals,  a  great  part  of 
men's  and  women's  work  may  be  measured  fairly  well  by  the 
muscular  exertion  involved  in  it.  But  in  England  less  than 
one-sixth  of  the  industrial  classes  are  now  engaged  on  work 
»of  this  kind  ]  while  the  force  exerted  by  steam-engines  alone 
is  more  than  twenty  times  as  much  as  could  be  done  by  the 
onuscles  of  all  Englishmen.  * 

Although  the  power  of  sustaining  great  muscular  exertion 

General  seems  to  rest  on  constitutional  strength  and  other 
vigour.  physical  conditions,  yet  even  it  depends  also  on 
force  of  will,  and  strength  of  character.  Energy  of  this  kind, 
which  may  perhaps  be  taken  to  be  the  strength  of  the  man,  as 
distinguished  from  that  of  his  body,  is  moral  rather  than 
physical ;  but  yet  it  depends  on  the  physical  condition  of 
nervous  strength  \  This  strength  of  the  man  himself,  this 
resolution,  energy  and  self-mastery,  or  in  short  this  "  vigour" 
is  the  source  of  all  progress :  it  shows  itself  in  great  deeds,  in 
great  thoughts  and  in  the  capacity  for  true  religious  feeling. 

§  2.  In  discussing  the  growth  of  numbers  a  little  has 
been  said  incidentally  of  the  causes  which  determine  length 
of  life :  but  they  are  in  the  main  the  same  as  those  which 
determine  constitutional  strength  and  vigour,  and  they  will 
occupy  our  attention  again  in  the  present  chapter. 

The  first  of  these  causes  is  the  climate.     A  warm  climate 

Influence  of     is  not  altogether  hostile  to  high  intellectual  and 

climate.  artistic  work  :  but  it  prevents  people  from  being 

able  to  endure  very  hard  exertion  of  any  kind  continued  for 

a  long  time. 

Climate  has  also  a  large,  share  in  determining  the  neces- 
The  necessa-  saries  of  life;  the  first  of  which  is  food.  Eood  must 
riesofiife.         supply  the  nitrogenous  and  other  elements  that 

1  This  must  be  distinguished  from  nervousness,  which,  as  a  rule,  indicates 
a  general  deficiency  of  nervous  strength ;  though  sometimes  it  proceeds  from 
nervous  irritabiUty  or  want  of  balance. 


THE    HEALTH   AND   STRENGTH   OF   THE   POPULATION.     139 

are  required  to  build  up  growing  tissues  and  to  repair  the 
waste  of  the  body.  It  must  also  afford  heat,  some  of  which 
can  be  converted  into  muscular  force;  and  for  this  purpose 
carbonaceous  food,  when  it  can  be  properly  digested,  is  the 
cheapest'.  Much  also  depends  on  the  proper  preparation  of 
food,  and  a  skilled  housewife  with  ten  shillings  a  week  to 
spend  on  food  will  often  do  more  for  the  health  and  strength 
of  her  family  than  an  unskilled  one  with  twenty.  The  great 
infant  mortality  among  the  poor  is  largely  due  to  the  want  of 
care  and  judgment  in  preparing  their  food ;  and  those  who  do 
not  entirely  succumb  to  this  want  of  motherly  care  often  grow 
up  with  enfeebled  constitutions.  Even  in  London  in  the 
seventeenth  and  eighteenth  centuries  the  mortality  was  eight 
per  cent,  greater  when  corn  was  dear  than  when  it  was  cheap : 
and  though  the  increase  of  wealth  and  of  charity  and  the 
constant  supply  of  cheap  foreign  corn  has  caused  the  worst 
effects  of  hunger  to  cease,  yet  the  want  of  fitting  food  is  still 
a  frequent  cause  of  that  general  weakening  of  the  system 
which  renders  it  unable  to  resist  disease. 

"We  have  already  seen  that  the  necessaries  for  efficiency 
vary  with  the  nature  of  the  work  to  be  done,  but  we  must 
now  examine  this  subject  a  little  more  closely. 

As  regards  muscular  work  in  particular,  there  is  a  close 
connection  between  the  supply  of  food  that  a  man  has,  and 
his  available  strength.  If  the  work  is  intermittent,  as  that 
of  some  dock  labourers,  a  cheap  but  nutritious  grain  diet  is 
sufficient.  But  for  very  heavy  continuous  strain,  such  as  is 
involved  in  puddlers'  and  the  hardest  navvies'  other  material 
work,  food  is  required  which  can  be  digested  and  necessaries, 
assimilated  even  when  the  body  is  tired.  This  quality  is  still 
more  essential  in  the  food  of  the  higher  grades  of  labour 
which  involve  increased  nervous  strain,  though  the  quantity 
required  is  generally  small. 

1  The  nitrogenous  elements  are  most  easily  got  from  animal  food.    They 
exist  also  in  vegetable  foods ;  but  not  in  a  form  that  is  so  easily  digested. 


140  BOOK  IV.   CH.  V.  §§  2 — 4. 

After  food,  the  next  necessaries  of  life  and  labour,  are 
clothing,  house-room  and  firing ;  when  they  are  deficient,  the 
mind  becomes  torpid,  and  ultimately  the  physical  constitution 
is  undermined. 

§  3.  Next  come  three  closely  allied  conditions  of  vigour, 
Hope,  freedom  namely,  hopefulness,  freedom,  and  change.  All 
and  change.  history  is  full  of  the  record  of  inefticiency  caused 
in  varying  degrees  by  slavery,  serfdom,  and  other  forms  of 
civil  and  political  oppression  and  repression.  Freedom  and 
hope  increase  not  only  man's  willingness  but  also  his  power 
for  work ;  physiologists  tell  us  that  a  given  exertion  consumes 
less  of  the  store  of  nervous  energy  if  done  under  the  stimulus 
of  pleasure  than  of  pain  :  and  without  hope  there  is  no  enter- 
prise. Security  of  person  and  property  are  two  conditions  of 
this  hopefulness  and  freedom ;  but  security  always  involves 
restraints  on  freedom,  and  it  is  one  of  the  most  difficult  prob- 
lems of  civilization  to  discover  how  to  obtain  the  security, 
which  is  a  condition  of  freedom,  without  too  great  a  sacrifice 
of  freedom  itself. 

Changes  of  work,  of  scene,  and  of  personal  associations 
bring  new  thoughts,  call  attention  to  the  imperfections  of  old 
methods,  stimulate  a  "divine  discontent,"  and  in  every  way 
develop  creative  energy.  A  shifting  of  places  enables  the 
more  powerful  and  original  minds  to  find  full  scope  for  their 
energies  and  to  rise  to  important  positions  :  whereas  those  who 
stay  at  home  are  often  over  much  kept  in  their  places.  Few 
men  are  prophets  in  their  own  land ;  neighbours  and  relations 
are  generally  the  last  to  pardon  the  faults  and  to  recognize 
the  merits  of  those  who  are  less  docile  and  more  enterprising 
than  those  around  them.  It  is  doubtless  chiefly  for  this  reason 
that  in  almost  every  part  of  England  a  disproportionately 
large  share  of  the  best  energy  and  enterprise  is  to  be  found 
among  those  who  were  born  elsewhere. 

Freedom  so  far  has  been  regarded  as  freedom  from  ex- 
ternal bonds.     But  that  higher  freedom,  which  comes  of  self- 


THE   HEALTH   AND   STRENGTH   OB^   THE   POPULATION.     141 

mastery,  is  an  even  more  important  condition  for  the  highest 
work.  The  elevation  of  the  ideals  of  life  on  which  this  de- 
pends, is  due  on  the  one  side  to  political  and  economic  causes, 
and  on  the  other  to  personal  and  religious  influences ;  among 
which  the  influence  of  the  mother  in  early  childhood  is 
supreme. 

§  4.  Bodily  and  mental  health  and  strength  are  much 
influenced  by  occupation \  At  the  beginning  of  influence  of 
this  century  the  conditions  of  factory  work  were  occupation, 
needlessly  unhealthy  and  oppressive  for  all,  and  especially  for 
young  children.  But  Factory  and  Education  Acts  have  re- 
moved the  worst  of  these  evils  from  factories;  though  many 
of  them  still  linger  about  domestic  industries  and  the  smaller 
workshops.  Infant  mortality  also  is  diminishing,  though  there 
remains  much  room  for  improvement  in  this  direction. 

The  higher  wages,  the  greater  intelligence,  and  the  better 
medical  facilities  of  townspeople  should  cause  infant  mortality 
to  be  much  lower  among  them  than  in  the  country.  But  it 
is  generally  higher,  especially  where  there  are  many  mothers 
who  neglect  their  family  duties  in  order  to  earn  money 
wages. 

In  almost  all  countries  there  is  a  constant  migration 
towards  the  towns.  The  large  towns  and  espe- 
cially London  absorb  the  very  best  blood  from 
all  the  rest  of  England;  the  most  enterprising,  the  most 
highly  gifted,  those  with  the  highest  physique  and  the  strongest 
characters  go  there  to  find  scope  for  their  abilities.  But  by 
the  time  their  children  and  children's  children  have  grown  up 

1  The  rate  of  mortality  is  low  among  ministers  of  religion  and  school- 
masters ;  among  the  agricultural  classes,  and  in  some  other  industries  such  as 
those  of  wheelwrights,  shipwrights  and  coal-miners.  It  is  high  in  lead  and  tin 
mining,  in  file-making  and  earthenware  manufacture.  But  neither  these  nor 
any  other  regular  trade  show  as  high  a  rate  of  mortality  as  is  found  among 
London  general  labourers  and  costermongers ;  while  the  highest  of  all  is  that 
of  servants  in  inns.  Such  occupations  are  not  directly  injurious  to  health, 
hut  they  attract  those  who  are  weak  in  physique  and  in  cliaracter  and  they 
encourage  irregular  habits. 


142  BOOK  IV.   CH.  V.  §§  4,  5. 

without  healthy  play,  and  without  fresh  air,  there  is  little 
trace  left  of  their  original  vigour^. 

There  is  perhaps  no  better  use  of  public  and  private 
money  than  in  providing  public  parks  and  playgrounds  in 
large  cities,  in  contracting  with  railways  to  increase  the 
number  of  the  workmen's  trains  run  by  them,  and  in  helping 
those  of  the  working  classes  who  are  willing  to  leave  the 
large  towns  to  do  so,  and  to  take  their  industries  with  them; 
while  money  spent  on  reducing  the  cost  of  living  in  large 
towns  by  building  workmen's  houses  at  a  loss  or  in  other 
ways,  is  likely  to  do  almost  as  much  harm  as  good,  and  some- 
times even  more.  If  the  numbers  of  the  working  classes  in 
the  large  towns  are  reduced  to  those  whose  work  must  be 
carried  on  there,  the  scarcity  of  their  labour  will  enable  them 
to  command  high  wages  ;  and  therefore  if  sanitary  laws  and 
rules  against  overcrowding  are  rigidly  enforced,  and  space 
enough  is  secured  to  provide  opportunities  of  healthy  play 
for  their  children,  those  who  live  in  large  towns  will  have  a 
better  chance  of  leaving  a  healthy  progeny  behind  them ;  and 
meanwhile  some  check  will  be  given  to  the  migration  from 
the  country  to  the  towns. 

§  5.  In  the  earlier  stages  of  civilization  natural  selection 
and  competition  made  it  the  rule  that  those,  who  were  strongest 
and  most  vigorous,  left  the  largest  progeny  behind  them.  It 
is  to  this  cause,  more  than  any  other,  that  the  progress  of  the 

1  This  is  seen  even  in  trades  that  require  but  little  muscular  strength; 
only  a  very  small  proportion  of  those  artisans  to  whom  London  owes  its  pre- 
eminence as  a  centre  of  highly  skilled  work  come  from  parents  who  were  born 
there ;  and  there  are  scarcely  any  whose  grandparents  were  born  there. 

The  death-rate  of  large  towns  gives  no  just  indication  of  their  effect  on  the 
health  and  vigour  of  the  people ;  chiefly  because  many  of  the  town  influences 
which  lower  vigour  do  not  appreciably  affect  mortality.  Other  reasons  are 
that  the  immigrants  into  towns  are  generally  picked  lives  and  in  the  full 
strength  of  youth ;  and  that  young  people  whose  parents  live  in  the  country 
generally  go  home  to  die.  The  mortality  of  females  in  London  between  the 
ages  of  fifteen  and  thirty-five  is  for  this  reason  abnormally  low. 

A  few  statistics  bearing  on  this  mortality  in  towns  are  given  in  Principles, 
IV.  V.  6. 


THE   HEALTH   AND   STRENGTH   OF   THE   POPULATION.     143 

human  race,  as  of  all  other  forms  of  life,  is  due;  and  though 
in    the    later    stages   of    civilization    the    upper 

,  1  •  Nature's  ten- 

classes  have  commonly  married  late,  and  m  con-  dency  to  weed 
sequence    have    had    fewer    children    than    the  °"*  ^^®  weak 

^  and  cause  the 

working  classes,  this  has  been  compensated  strong  to  sur- 
for  by  the  fact  that  among  the  working  classes 
themselves  the  old  rule  has  held;  and  the  vigour  of  the 
nation  that  is  tending  to  be  damped  out  among  the  upper 
classes  is  thus  replenished  by  the  fresh  stream  of  strength 
that  is  constantly  welling  up  from  below.  But  in  Prance  for 
a  long  time,  recently  in  America,  and  to  a  less  extent  in 
England,  there  has  been  some  tendency  for  the  abler  and 
more  intelligent  part  of  the  working  class  population  to 
avoid  having  large  families  ;  and  this  is  a  source  of  great 
danger. 

There  are  increasing  reasons  for  fearing,  that  though  the 
progress  of  medical  science  and  sanitation  is  .  ,  ^^^_ 
saving  from  death  a  continually  increasing  number  teracted  by 
of  the  children  of  those  who  are  feeble  physically 
and  mentally ;  yet  meanwhile  those  who  are  strong,  are  tending 
to  defer  their  marriages  and  in  other  ways  to  limit  the  number 
of  children  whom  they  leave  behind  them.  The  causes  are  partly 
selfish  and  partly  unselfish;  and  the  former  probably  do  less 
harm  than  the  latter;  for  perhaps  it  is  best  for  the  world  that 
hard  and  frivolous  people  should  leave  but  few  descendants 
of  their  own  type.  But  some  people  marry  late,  and  have 
few  children,  in  consequence  of  a  desire  to  secure  as  good  a 
social  position  as  possible  for  themselves  and  their  children. 
This  desire  contains  many  elements  that  fall  short  of  the 
highest  ideals  of  human  aims,  and  in  some  cases,  a  few  that 
are  distinctly  base;  but  after  all  it  has  been  one  of  the  chief 
factors  of  progress,  and  those  who  are  affected  by  it  include 
many  of  the  best  and  strongest  of  the  race.  Such  persons, 
having  a  high  sense  of  duty,  are  specially  likely  to  be  in- 
fluenced by  the  doctrine  that  large  families  are  injurious  to 


144  BOOK  IV.   CH.  V.   §  5. 

the  world  and  that  they  can  do  better  for  a  small  than  for  a 
large  family  \ 

There  are  other  considerations  of  which  account  ought  to 
Practical  con-  be  taken;  but  so  far  as  the  points  discussed  in 
elusion.  ^j^jg  chapter  are  concerned,  it  seems  primd  facie 

advisable  that  people  should  not  bring  children  into  the  world, 
till  they  can  see  their  way  to  giving  them  at  least  as  good  an 
education  both  physical  and  mental  as  they  themselves  had; 
and  that  it  is  best  to  marry  moderately  early  provided  there 
is  sufficient  self-control  to  keep  the  family  within  the  requisite 
bounds  without  transgressing  moral  laws.  The  general  adop- 
tion of  these  principles  of  action,  combined  with  an  adequate 
provision  of  fresh  air  and  of  healthy  play  for  our  town 
populations,  could  hardly  fail  to  cause  the  strength  and  vigour 
of  the  race  to  improve.  And  we  shall  presently  find  reasons 
for  believing  that  if  the  strength  and  vigour  of  the  race 
improves,  the  increase  of  numbers  will  not  for  a  long  time 
to  come  cause  a  diminution  of  the  average  real  income  of  the 
people. 

Thus  then  the  progress  of  knowledge,  and  in  particular 
The  forces  of  of  medical  science,  the  ever-growing  activity  and 
good  and  evil,  ^isdom  of  Government  in  all  matters  relating  to 
health,  and  the  increase  of  material  wealth,  all  tend  to  lessen 
mortality  and  to  increase  health  and  strength,  and  to  lengthen 
life.  On  the  other  hand,  vitality  is  lowered  and  the  death- 
rate  raised  by  the  rapid  increase  of  town  life,  and  by  the 
tendency  of  the  higher  strains  of  the  population  to  marry 
later  and  to  have  fewer  children  than  the  lower.  If  the 
former  set  of  causes  were  alone  in  action,  but  so  regulated  as 
to  avoid  the  danger  of  over-population,  it  is  probable  that 
man  would  quickly  rise  to  a  physical  and  mental  excellence 
far  superior  to  any  that  the  world  has  yet  known;  while  if 
the  latter  set  acted  unchecked,  he  would  speedily  degenerate. 

1  This  question  is  a  little  further  discussed  in  Principles  IV.  v.  7. 


THE   HEALTH   AND   STRENGTH   OF   THE   POPULATION.     145 

As  it  is,  the  two  sets  hold  one  another  very  nearly  in  balance, 
the  fomier  slightly  preponderating.  While  the  population 
of  England  continues  to  increase,  those  who  are  out  of  health 
in  body  or  mind  are  certainly  not  an  increasing  part  of  the 
whole;  and  the  rest  are  much  better  fed  and  clothed,  and 
with  a  few  exceptions  are  stronger  than  they  were^. 

1  It  is  sometimes  urged  that  the  death-rate  in  some  large  towns,  and  espe- 
fially  in  London,  is  not  as  high  as  might  have  been  anticipated  if  town  hfe  is 
really  injurious  to  health  and  vigour.  But  this  argument  seems  untrust- 
worthy, partly  because  many  of  the  town  influences  which  lower  vigour,  do 
not  much  affect  mortahty;  and  partly  because  the  majority  of  immigrants 
into  the  towns  are  in  the  full  strength  of  youth,  and  of  more  than  average 
energy  and  courage;  while  young  people  whose  parents  live  in  the  country 
generally  go  home  when  they  become  seriously  ill. 

It  is  not  to  be  concluded  from  this  that  the  race  is  degenerating  physically, 
nor  even  that  its  nervous  strength  is  on  the  whole  decaying.  On  the  contrary 
the  opposite  is  plainly  true  of  those  boys  and  girls  who  are  able  to  enter  freely 
into  modem  outdoor  amusements,  who  frequently  spend  holidays  in  the  country 
and  whose  food,  clothing  and  medical  care  are  abundant,  and  governed  by  the 
best  modern  knowledge.  But  until  quite  recently  the  children  of  the  working 
classes  in  large  towns  have  had  a  bad  time:  and  it  is  doubtful  whether  the 
recent  diminution  of  their  hours  of  labour,  the  advances  of  sanitation  and 
medical  science,  improvement  of  their  food  and  clothing,  of  their  education 
and  even  in  some  cases  their  playgrounds  quite  make  up  for  the  evils  inherent 
in  town  life. 

The  old  English  Life  Table,  based  on  the  figures  of  the  years  1838 — 54, 
shows  one-half  of  the  males  dying  before  they  are  45,  and  of  the  females 
before  they  are  47,  while  the  New  Table,  based  on  the  figures  of  1871 — 80, 
raises  these  ages  to  47  and  52  respectively.  The  death-rate  is  much  lower 
than  it  was  in  the  earlier  years  of  life,  though  higher  in  the  later  years :  and 
of  the  total  number  of  years  added  to  life  by  the  greater  longevity,  two-thirds 
fall  within  the  most  important  period  of  25  to  65  years  of  age. 


M.  10 


CHAPTER   VI 


INDUSTRIAL   TRAINING. 

§  1.  Having  discussed  the  causes  which  govern  the 
growth  of  a  numerous  and  vigorous  population,  we  have  next 
to  consider  the  training  that  is  required  to  develop  its  in- 
dustrial efficiency  \ 

Very  backward  races  are  unable  to  keep  on  at  any  kind 
„    ,  .„  , ,         of  work  for  a  long  time  :  and  even  the  simplest 

Unskilled  la-  n  ^  r     ^ 

hour  a  relative  form  of  what  we  regard  as  unskilled  work  is 
skilled  work  relatively  to  them  ;  for  they  have 
not  the  requisite  assiduity,  and  they  can  acquire  it  only  by  a 
long  course  of  training.  But  where  education  is  universal, 
an  occupation  may  fairly  be  classed  as  unskilled,  though  it 
requires  a  knowledge  of  reading  and  writing.  Again,  in 
districts  in  which  manufactures  have  long  been  domiciled,  a 
habit  of  responsibility,  of  carefulness  and  promptitude  in 
handling  expensive  machinery  and  materials  becomes  the 
common  property  of  all ;  and  then  much  of  the  work  of  tending 
machinery  is  said  to  be  entirely  mechanical  and  unskilled, 
and  to  call  forth  no  human  faculty  that  is  worthy  of  esteem. 
But  in  fact  it  is  probable  that  not  one-tenth  of  the  present 
populations  of  the  world  have  the  mental  and  moral  faculties, 
the  intelligence,  and  the  self-control  that  are  required  for  it : 
perhaps  not  one  half  could  be  made  to  do  the  work  well 
by  steady  training  for  two  generations.  Even  of  a  manu- 
facturing population  only  a  small  part  are  capable  of  doing 

1  For  some  remarks  on  the  influence  of  training  on  the  forms  taken  by 
natural  vigour,  see  Pnncijdes  VI.  vi.  1. 


INDUSTRIAL  TRAINING.  147 

many  of  the  tasks  that  appear  at  first  sight  to  be  entirely 
monotonous.  Machine-weaving,  for  instance,  simple  as  it 
seems,  is  divided  into  higher  and  lower  grades;  and  most  of 
those  who  work  in  the  lower  grades  have  not  "the  stuff  in 
them"  that  is  required  for  weaving  with  several  colours. 
And  the  differences  are  even  greater  in  industries  that  deal 
with  hard  materials,  wood,  metals,  or  ceramics. 

Some  kinds  of  manual  work  require  long-continued  prac- 
tice in  one  set  of  operations,  but  these  cases  are  not  very 
common,  and  they  are  becoming  rarer:  for  machinery  is  con- 
stantly taking  over  work  that  requires  manual  skill  of  this 
kind.  It  is  indeed  true  that  a  general  command  over  the 
use  of  one's  fingers  is  a  very  important  element  of  industrial 
efficiency;  but  this  is  the  result  chiefly  of  nervous  strength, 
and  self-mastery.  It  is  of  course  developed  by  training,  but 
the  greater  part  of  this  may  be  of  a  general  character  and 
not  special  to  the  particular  occupation;  just  as  a  good 
cricketer  soon  learns  to  play  tennis  well,  so  a  skilled  artisan 
can  often  move  into  other  trades  without  any  great  and 
lasting  loss  of  efficiency. 

Manual  skill  that  is  so  specialized,  as  to  be  wholly  in- 
capable of  being  transferred  from  one  occupation  to  another, 
is  becoming  steadily,  less  and  less  important.  Putting  aside 
for  the  present  the  faculties  of  artistic  perception  and  artistic 
creation,  we  may  say  that  what  makes  one  occupation  higher 
than  another,  what  makes  the  workers  of  one  town  or 
country  more  efficient  than  those  of  another,  is  chiefly  a 
superiority  in  general  sagacity  and  energy  which  is  not 
specialized  to  any  one  trade. 

To  be  able  to  bear  in  mind  many  things  at  a  time,  to 
have  everything  ready  when  wanted,  to  act  promptly  and 
show  resource  when  anything  goes  wrong,  to  accommodate 
oneself  quickly  to  changes  in  details  of  the  work  done,  to  be 
steady  and  trustworthy,  to  have  always  a  reserve  of  force 
which   will   come  out  in  emergency,  these   are  the  qualities 

10—2 


148  BOOK  IV.   CH.  VI.   §§  1—3. 

which  make  a  great  industrial  people.  They  are  not  peculiar 
to  any  occupation,  but  are  wanted  in  all;  and  if  they  cannot 
always  be  easily  transferred  from  one  trade  to  other  kindred 
trades,  the  chief  reason  is  that  they  require  to  be  supple- 
mented by  some  knowledge  of  materials  and  familiarity  with 
special  processes. 

We  may  then  use  the  term  general  ability  to  denote 
General  and  ^^C)se  faculties  and  that  general  knowledge  and 
Specialized  intelligence  which  are  in  varying  degrees  the 
^  *  *  ^'  common   property    of   all   the   higher   grades  of 

industry :  while  that  manual  dexterity  and  that  acquaintance 
with  particular  materials  and  processes  which  are  required  for 
the  special  purposes  of  individual  trades  may  be  classed  as 

SPECIALIZED  ABILITY. 

I'X^ljfeneral  ability  depends  largely  on  the  surroundings 
Influence  of  ^^  childhood  and  youth.  In  this  the  first  and  far 
the  home.  the  most  powerful  influence  is  that  of  the  mother. 
Next  comes  the  influence  of  the  father,  of  other  children,  and 
in  some  cases  of  servants.  As  years  pass  on  the  child  of  the 
working  man  learns  a  great  deal  from  what  he  sees  and  hears 
going  on  around  him;  and  when  we  enquire  into  the  ad- 
vantages for  starting  in  life  which  children  of  the  well-to-do 
classes  have  over  those  of  artisans,  and  which  these  in  their 
turn  have  over  the  children  of  unskilled  labourers,  we  shall 
have  to  consider  these  influences  of  home  more  in  detail. 
But  at  present  we  may  pass  to  consider  the  more  general  in- 
fluences of  school  education. 

Little  need  be  said  of  general  education;  though  the  in- 
fluence even  of  that  on  industrial  efficiency  is 
greater  than  it  appears.  It  is  true  that  the 
children  of  the  working  classes  must  very  often  leave  school, 
when  they  have  but  learnt  the  elements  of  reading,  writing, 
arithmetic  and  drawing;  and  it  is  sometimes  argued  that  part 
of  the  little  time  spent  on  these  subjects  would  be  better 
given    to   practical   work.      But   the   advance   made   during 


INDUSTRIAL  TRAINING.  149 

school-time  is  important  not  so  much  on  its  own  account,  as 
for  the  power  of  future  advance  which  a  school  education 
gives.  Reading  and  writing  afford  the  means  of  that  wider 
intercourse  which  leads  to  breadth  and  elasticity  of  mind, 
and  which  is  enabling  the  working  man  of  to-day  to  be  as 
capable  a  citizen  as  was  the  country  gentleman  of  last 
century  \ 

§  3.     Technical  education  used  to  mean  little  more  than 
imparting  that  manual  dexterity  and   that  ele-      Technical 
mentary  knowledge  of  machinery  and  processes,      education, 
which  an  intelligent  lad  quickly  picks  up  for  himself  when  his 
work  has  begun;  though  if  he  has  learnt  it  beforehand,  he  can 
perhaps  earn  a  few  shillings  more  at  starting  than  if  he  had  been 
quite  ignorant.     But  such  so-called  education  does  not  develop 
faculties ;  it  rather  hinders  them  from  being  developed.    A  lad, 
who  has  picked  up  the  knowledge  for  himself,  has  educated 
himself  by  so  doing;  and  he  is  likely  to  make  better  progress  / 
in  the  future  than  one  who  has  been  taught  in  a  school  of  this  / 
old-fashioned  kind.    Techniccal  education  is  however  outgrowing  V 
its  mistakes ;  and  is  aiming,  firstly,  at  giving  a  general  com-  i 
mand  over  the  use  of  eyes  and  fingers^  (though  there  are  signs   I 
that  this  work  is  being  taken  over  by  general  education,  to 

1  It  is  true  that  learning  to  spell  does  not  educate  the  faculties  to  any  con- 
siderable extent,  and  that  the  time  spent  on  it  is  nearly  wasted.  If  spelling 
and  pronunciation  could  be  brought  into  harmony  in  the  English  language,  as 
they  are  in  most  other  languages,  children  would,  it  has  been  estimated,  be 
able  to  read  fluently  a  year  earlier  than  they  can  now. 

2  According  to  the  best  English  opinions,  technical  education  for  the 
higher  ranks  of  industry  should  keep  the  aim  of  developing  the  faculties 
almost  as  constantly  before  it  as  general  education  does.  It  should  rest  on 
the  same  basis  as  a  thorough  general  education,  but  should  go  on  to  work  out 
in  detail  special  branches  of  knowledge  for  the  benefit  of  particular  trades. 
Our  aim  should  be  to  add  the  scientific  training  in  which  the  countries  of  Western 
Europe  are  ahead  of  us  to  that  daring  and  restless  energy  and  those  practical 
instincts,  which  seldom  flourish  unless  the  best  years  of  youth  are  spent  in 
the  workshop ;  recollecting  always  that  whatever  a  youth  learns  for  himself 
by  direct  experience  in  well-conducted  works,  teaches  him  more  and  stimulates 
his  mental  activity  more  than  if  it  were  taught  him  by  a  master  in  a  technical 
school  with  model  instruments. 


150  BOOK  IV.  CH.  VI.  §§  3 — 5. 

which  it  properly  belongs);  and  secondly  at  imparting  artistic 
skill  and  knowledge,  and  methods  of  investigation,  which  are 
useful  in  particular  occupations,  but  are  seldom  properly 
acquired  in  the  course  of  practical  work. 

The  old  apprenticeship  system  is   not  exactly  suited  to 

Apprentice-    modern  conditions  and  it  has  fallen  into  disuse; 

ships.  i^^t  a  substitute  for  it  is  wanted.     So  many  and 

various  are  the  branches  of  any  great  modern  industry  that 
it  would  be  impossible  for  the  employers  to  undertake,  as 
they  used  to  do,  that  every  youth  committed  to  their  care 
should  learn  all ;  and  indeed  a  lad  of  ordinary  ability  would 
be  bewildered  by  the  attempt.  But  the  employer  might  bind 
himself  to  see  that  the  apprentice  is  thoroughly  taught  in  the 
workshop  all  the  subdivisions  of  one  great  division  of  his 
trade,  instead  of  letting  him  learn  only  one  of  these  subdi- 
visions, as  too  often  happens  now.  The  apprentice's  training 
would  then  often  be  as  broad  as  if  he  had  been  taught  the 
whole  of  the  trade  as  it  existed  a  few  generations  ago;  and 
it  might  be  supplemented  by  a  theoretical  knowledge  of  all 
branches  of  the  trade,  acquired  in  a  technical  school. 

§  4.  It  is  true  that  there  are  many  kinds  of  work  which 
can  be  done  as  efficiently  by  an  uneducated  as  by  an  educated 
,    ,.        ,  workman :  and  that  the  higher  branches  of  edu- 

Indirect  bene-  ^  ^  *=• 

fits  of  a  good  cation  are  of  little  direct  use  except  to  employers 
and  foremen  and  a  comparatively  small  number 
of  artisans.  But  a  good  education  confers  great  indirect  bene- 
fits even  on  the  ordinary  workman.  It  stimulates  his  mental 
activity ;  it  fosters  in  him  a  habit  of  wise  inquisitiveness ;  it 
makes  him  more  intelligent,  more  ready,  more  trustworthy  in 
his  ordinary  work ;  it  raises  the  tone  of  his  life  in  working 
hours  and  out  of  working  hours ;  it  is  thus  an  important 
means  towards  the  production  of  material  wealth ;  at  the  same 
time  that,  regarded  as  an  end  in  itself,  it  is  inferior  to  none  of 
those  which  the  production  of  material  wealth  can  be  made  to 
subserve. 


INDUSTRIAL  TRAINING.  151 

We  must  however  look  in  another  direction  for  a  part, 
perhaps  the  greater  part,  of  the  immediate  economic  gain 
which  the  nation  may  derive  from  an  improvement  in  the 
general  and  technical  education  of  the  mass  of  the  people. 
We  must  look  not  so  much  at  those  who  stay  in  the  rank  and 
file  of  the  working  classes,  as  at  those  who  rise  from  a  humble 
birth  to  join  the  higher  ranks  of  skilled  artisans,  to  become 
foremen  or  employers,  to  advance  the  boundaries  of  science,  or 
possibly  to  add  to  the  national  wealth  in  art  and  literature. 

The  laws  which  govern  the  birth  of  genius  are  inscrutable. 
It  is  probable  that  the  percentage  of  children  of 
the  working  classes,  who  are  endowed  with  natural  much  natural 
abilities  of  the  highest  order,  is  not  so  great  as  ability  runs  to 

o  '  o        ^  waste. 

that  of  the  children  of  people,  who  have  attained 
or  have  inherited  a  higher  position  in  society.  But  since  the 
manual  labour  classes  are  four  or  five  times  as  numerous  as  all 
other  classes  put  together,  it  is  not  unlikely  that  more  than 
half  the  best  natural  genius  that  is  born  into  the  country 
belongs  to  them  ;  and  of  this  a  great  part  is  fruitless  for  want 
of  opportunity.  There  is  no  extravagance  more  prejudicial  to 
the  growth  of  national  wealth  than  that  wasteful  negligence 
which  allows  genius  that  happens  to  be  born  of  lowly  parent- 1 
age  to  expend  itself  in  lowly  work.  No  change  would  conduce 
so  much  to  a  rapid  increase  of  material  wealth  as  an  improve- 
ment in  our  schools,  and  especially  those  of  the  middle  grades; 
provided  it  is  combined  with  an  extensive  system  of  scholar- 
ships, which  will  enable  the  clever  son  of  a  working  man  to 
rise  gradually  from  school  to  school  till  he  had  the  best  theo- 
retical and  practical  education  which  the  age  can  give^ 

§  5.  Most  parents  are  willing  enough  to  do  for  their 
children  what  their  own  parents  did  for  them ;  and  perhaps 
even  to  go  a  little  beyond  it,  if  they  find  themselves  among 

1  The  influence  of  education  is  discussed  much  more  fully  in  Principles 
IV.  VI.  4,  5, 6 ;  and  in  particular  something  is  said  of  the  importance  of  artistic 
education. 


152  BOOK  IV.   CH.  VI.  §  5. 

neighbours  who   happen  to  have  a  rather  higher  standard. 

But  to  do  more  than  this  requires,  in  addition 
parent"fo°the  *^  ^^®  moral  qualities  of  unselfishness  and  a 
education  of      warmth  of  affection  that  are  perhaps  not  rare,  a 

certain  habit  of  mind  which  is  as  yet  not  very 
common.  It  requires  the  habit  of  distinctly  realizing  the 
future,  and  of  regarding  a  distant  event  as  of  nearly  the  same 
importance  as  if  it  were  close  at  hand,^ — a  habit  which  is  at 
once  a  chief  product  and  a  chief  cause  of  civilization,  and  is 
seldom  fully  developed  except  among  the  middle  and  upper 
classes  of  the  more  cultivated  nations. 

Mill  was  so  much  impressed  by  the  difficulties  that  beset  a 

I  Industrial      parent  in  the  attempt  to  bring  up  his  son  to  an 
grades.  occupation  widely  different  in  character  from  his 

own,  that  he  said^:— ^'So  complete,  indeed,  has  hitherto  been 
the  separation,  so  strongly  marked  the  line  of  demarcation, 
between  the  different  grades  of  labourers,  as  to  be  almost 
equivalent  to  an  hereditary  distinction  of  caste  X  each  employ- 
ment being  chiefly  recruited  from  the  children  of  those  already 
employed  in  it,  or  in  employments  of  the  same  rank  with  it 
in  social  estimation,  or  from  the  children  of  persons  who,  if 
originally  of  a  lower  rank,  have  succeeded  in  raising  them- 
selves by  their  exertions.  The  liberal  professions  are  mostly 
supplied  by  the  sons  of  either  the  professional  or  the  idle 
classes  :  the  more  highly  skilled  manual  employments  are  filled 
up  from  the  sons  of  skilled  artisans  or  the  class  of  tradesmen 
who  rank  with  them  :  the  lower  classes  of  skilled  employments 
are  in  a  similar  case ;  and  unskilled  labourers,  with  occasional 
exceptions,  remain  from  father  to  son  in  their  pristine  con- 
dition. ^Consequently  the  wages  of  each  class  have  hitherto 
been  regulated  by  the  increase  of  its  own  populatipn,  rather 
than  that  of  the  general  population  of  the  country."  \ 

But  he  goes  on,  "  The  changes,  however,  now  so  Vapidly 
taking  place  in  usages  and  ideas  are  undermining  all  these 
1  Book  u.  ch.  XIV.  §  2. 


INDUSTRIAL  TRAINING.  153 

distinctions;"  and,  since  he  wrote,  the  broad  lines  of  division 
which  he  pointed  out  have  been  almost  obliterated 
by  the  rapid  action  of  those  causes  which,  as  we  tween  grades 
saw    earlier    in   the    chapter,   are   reducinsj   the  ^^^  fading 

...  .  away. 

amount  of  skill  and  ability  required  in  some  occu- 
pations and  increasing  it  in  others.  We  cannot  any  longer 
regard  different  occupations  as  distributed  among  four  great 
planes;  but  we  may  perhaps  think  of  them  as  resembling  a 
long  flight  of  steps  of  unequal  breadth,  some  of  them  being  so 
broad  as  to  act  as  landing  stages.  Or  even  better  still  we 
might  picture  to  ourselves  two  flights  of  stairs,  one  represent- 
ing the  "hard-handed  industries"  and  the  other  "the  soft- 
handed  industries ;"  because  the  vertical  division  between 
these  two  is  in  fact  as  broad  and  as  clearly  marked  as  the 
horizontal  division  between  any  two  grades. 

But  though  parents  generally  bring  up  their  children  to 
occupations  in  their  own  grade,  and  therefore  the  Provisional 
total  supply  of  labour  in  any  grade  in  one  gene-  conclusion, 
ration  is  in  a  great  measure  determined  by  the  numbers  in 
that  grade  in  the  preceding  generation,  yet  within  the  grade 
itself  there  is  greater  mobility.  If  the  advantages  of  any  one 
occupation  in  it  rise  above  the  average,  there  is  a  quick  influx 
of  youth  from  other  occupations  into  the  grade.  The  vertical 
movement  from  one  grade  to  another  is  seldom  very  rapid  or 
on  a  very  large  scale ;  but,  when  the  advantages  of  a  grade 
have  risen  relatively  to  the  difliculty  of  the  work  required  of 
it,  many  small  streams  of  labour,  both  youthful  and  adult, 
will  begin  to  flow  towards  it ;  and  though  none  of  them  may 
be  very  large,  they  will  together  have  a  sufficient  volume  to 
satisfy  before  long  the  increased  demand  for  labour  in  that 
grade. 

We  must  defer  to  a  later  stage  a  fuller  discussion  of  the 
obstacles  which  the  conditions  of  any  place  and  time  oppose 
to  the  free  mobility  of  labour,  and  also  of  the  inducements 
which  they  ofl"er  to  anyone  to   change  his  occupation  or  to 


154  BOOK   IV.    CH.   VI,    §   5. 

bring  up  his  son  to  an  occupation  different  from  his  own. 
But  we  have  seen  enough  to  conclude  that,  other  things  being 
equal,  an  increase  in  the  earnings  that  are  to  be  got  by  labour 
increases  its  rate  of  growth ;  or,  in  other  w^ords,  a  rise  in  its 
demand  price  increases  the  supply  of  it.  If  the  state  of  know- 
ledge, and  of  social  and  domestic  habits  be  given,  then  the 
vigour  of  the  population,  and  both  the  numbers  and  vigour 
of  any  trade  in  particular,  may  be  said  to  have  a  supply  price 
in  this  sense,  that  there  is  a  certain  level  of  the  demand  price 
which  will  keep  them  stationary;  that  a  higher  price  would 
cause  them  to  increase,  and  that  a  lower  price  would  cause 
them  to  decrease.  The  same  proposition  holds  true  as  to  the 
numbers  of  population  as  a  whole  in  nearly  all  countries. 
But  the  influence  of  economic  causes  on  the  growth  of  num- 
bers is  very  uncertain  in  its  action  especially  where,  as  in 
France,  all  but  the  very  poorest  classes  lay  great  store  on  the 
inheritance  of  family  property. 

During  these  three  chapters  we  have  discussed  the  supply 
of  labour  mainly  as  a  means  towards  the  production  of  ma- 
terial wealth.  But  here,  as  in  every  other  economic  inquiry, 
we  must  bear  in  mind  that  the  only  aim  of  that  production 
is  the  development  of  the  people  in  numbers,  in  health,  in 
strength,  in  happiness  and  above  all  in  character. 


a- 


HT1' 


CHAPTER  VII. 

THE   GROWTH    OF   WEALTH. 

§  1.  The  earliest  forms  of  wealth  were  probably  imple- 
ments for  hunting  and  fishing,  and  personal  orna-  Early  formu  of 
ments ;  and,  in  cold  countries,  clothing  and  huts,  wealth. 
As  numbers  thickened  and  the  people  settled  down  to  agri- 
culture, cultivated  land  took  the  first  place  in  the  inventory 
of  wealth ;  and  that  part  of  the  value  of  the  land  which  was 
due  to  improvements  (among  which  wells  held  a  conspicuous 
place)  became  the  chief  element, of  capital,  in  the  narrower 
sense  of  the  term.  Next  in  importance  came  houses,  domesti- 
cated animals,  and  in  some  places  boats  and  ships;  but  the 
implements  of  production  whether  for  use  in  agriculture  or 
in  domestic  manufactures  remained  for  a  long  time  of  little 
value.  During  all  this  time  the  only  trade  that  used  very 
expensive  implements  was  the  trade  of  carrying  goods  by 
water :  the  weavers'  looms,  the  husbandman's  ploughs  and  the 
blacksmith's  anvils  were  of  simple  construction  and  were  of 
little  account  beside  the  merchant's  ships.  But  in  the  eight- 
eenth century  England  inaugurated  the  era  of  expensive 
implements. 

The  implements  of  the  English  farmer  had  been  rising 
slowly  in  value  for  a  long  time  ;  but  the  progress  Modem  forms 
was  quickened  in  the  eighteenth  century.  After  of  wealth, 
a  while  the  use  first  of  water  power  and  then  of  steam  power 
caused  the  rapid  substitution  of  expensive  machinery  for  in- 
expensive hand  tools  in  one  department  of  production  after 
another.  As  in  earlier  times  the  most  expensive  implements 
were  ships  and,  in  some  cases,  canals  for  navigation  and  irri- 
gation ;  so  now  they  are  the  means  of  locomotion  in  general — 


156  BOOK  IV.   CH.  VII.  §1 1,  2. 

railways  and  tramways,  canals,  docks  and  ships,  telegraph  and 
telephone  systems  and  water-works :  even  gas-works  might 
almost  come  under  this  head,  on  the  ground  that  a  great  part 
of  their  plant  is  devoted  to  distributing  the  gas.  After  these 
come  mines  and  iron  and  chemical  works,  ship-building  yards, 
printing-presses,  and  other  large  factories  full  of  expensive 
machinery.  And,  on  whichever  side  we  look,  we  find  that  the 
progress  and  diffusion  of  knowledge  are  constantly  leading  to 
the  adoption  of  new  processes  and  new  machinery,  which 
economize  human  effort  on  condition  that  some  of  the  effort  is 
spent  a  good  while  before  the  attainment  of  the  ultimate  ends 
to  which  it  is  directed. 

As  civilization  progresses,  man  develops  new  ^^ts,  and 
new  and  more  expensive  ways  of  gratifying  them.  There 
seems  to  be  no  good  reason  for  believing  that  we  are  anywhere 
near  a  stationary  state  in  which  there  will  be  no  new  im- 
portant wants  to  be  satisfied ;  in  which  there  will  be  no  more 
room  for  profitably  investing  present  effort  in  providing  for 
the  future ;  and  in  which ,  the  accumulation  of  wealth  will 
cease  to  have  any  reward.  \The  whole  history  of  man  shows 
that  his  wants  expand  with  'the  growth  of  his  wealth  and 
knowledge."^.  And  with  the  growth  of  openings  for  the  in- 
vestment of  dapital  there  is  a  constant  increase  in  that  surplus 
of  production  over  the  necessaries  of  life,  which  gives  the 
power  to  save'. 

§  2.  The  habit  of  distinctly  realizing  the  future  and 
providing  for  it  has  developed  itself  slowly  and 
ofthe  habit  of  fitfully  in  the  course  of  man's  history.  Travel- 
providing  for    iej.g   ^eii   ^s   ^f   tribes  who  might  double  their 

the  future.  ^  _  ° 

resources  and  enjoyments  without  increasing  their 
total  labour,  if  they  would  only  apply  a  little  in  advance  the 
means  that  lie  within  their  power  and  their  knowledge;  as, 
for  instance,  by  fencing  in  their  little  plots  of  vegetables 
against  the  intrusion  of  wild  animals. 

1  More  details  on  the  subject  of  this  Section  are  given  in  Principles  VI. 
Yn.  1,  2. 


THE  GROWTH   OF  WEALTH.  157 

But  even  this  apathy  is  perhaps  less  strange  than  the 
wastefulness  that  is  found  now  among  some  classes  in  our 
own  country.  Cases  are  not  rare  of  men  who  alternate  be- 
tween earning  two  or  three  pounds  a  week  and  being  reduced 
to  the  verge  of  starvation  :  the  utility  of  a  shilling  to  them 
when  they  are  in  employment  is  less  than  that  of  a  penny 
when  they  are  out  of  it,  and  yet  they  never  attempt  to  make 
provision  for  the  time  of  need.  At  the  opposite  extreme 
there  are  misers,  in  some  of  whom  the  passion  for  saving 
borders  on  insanity ;  while,  even  among  peasant  proprietors 
and  some  other  classes,  we  meet  not  unfrequently  with  people 
who  carry  thrift  so  far  as  to  stint  themselves  of  necessaries, 
and  to  impair  their  power  of  future  work.  Thus  they  lose 
every  way  :  they  never  really  enjoy  life ;  while  the  income 
which  their  stored-up  wealth  brings  them  is  less  than  they 
would  have  got  from  the  increase  of  their  earning  power,  if 
they  had  invested  in  themselves  the  wealth  that  they  have 
accumulated  in  a  material  form. 

In  India,  and  to  a  less  extent  in  Ireland,  we  find  people 
who  do  indeed  abstain  from  immediate  enjoyment  and  save 
up  considerable  sums  with  great  self-sacrifice,  but  spend  all 
their  savings  in  lavish  festivities  at  funerals  and  marriages. 
They  make  intermittent  provision  for  the  near  future,  but 
scarcely  any  permanent  provision  for  the  distant  future :  the 
great  engineering  works  by  which  their  productive  resources 
have  been  so  much  increased,  have  been  made  chiefly  with  the 
capital  of  the  much  less  self-denying  race  of  Englishmen. 

Thiis  the  causes  which  control  the  accumulation  of  wealth 
differ  widely  in  different  countries  and  different  ages.  They 
are  not  quite  the  same  among  any  two  races,  and  perhaps  not 
even  among  any  two  social  classes  in  the  same  race.  They 
depend  much  on  social  and  religious  sanctions;  and  it  is 
remarkable  how,  when  the  binding  force  of  custom  has  been 
in  any  degree  loosened,  differences  of  personal  character  will 
cause  neighbours  brought  up  under  like  conditions  to  differ 
from  one  another  more  widely  and  more  frequently  in  their 


158  BOOK  IV.  CH.  VII.  §§  8 — 4. 

habits  of  extravagance  or  thrift  than  in  almost  any  other 
respect. 

§  3.  The  thriftlessness  of  early  times  was  in  a  great  mea- 
o       ..  sure  due  to  the  want  of  security  that  those  who 

Security  as  a  *' 

condition  of  made  provision  for  the  future  would  enjoy  it : 
saving.  ^^j_^  those,  who  were  already  wealthy,  were  strong 

enough  to  hold  what  they  had  saved ;  the  laborious  and  self- 
denying  peasant  who  had  heaped  up  a  little  store  of  wealth 
only  to  see  it  taken  from  him  by  a  stronger  hand,  was  a 
constant  warning  to  his  neighbours  to  enjoy  their  pleasure 
and  their  rest  when  they  could.  The  border  country  between 
England  and  Scotland  made  little  progress  so  long  as  it  was 
liable  to  incessant  forays ;  there  was  very  little  saving  by  the 
French  peasants  in  the  last  century  when  they  could  escape 
the  plunder  of  the  tax-gatherer  only  by  appearing  to  be  poor, 
or  by  Irish  cottiers,  who,  on  many  estates,  even  a  generation 
ago,  were  compelled  to  follow  the  same  course  in  order  to 
avoid  the  landlords'  claims  of  exorbitant  rents. 

Insecurity  of  this  kind  has  nearly  passed  away  from  the 

civilized  world.     But  we  are  still  suffering  in  England  from 

the  effects  of  the  Poor-law  which  ruled  at  the  beginning  of 

the  century,  and  which  introduced  a  new  form  of  insecurity 

)r  the  working  classes.     For  it  arranged  that  part  of  their 

'-ages  should,  in  effect,  be  given  in  the  form  of  poor  relief; 

Lnd  that  this  should  be  distributed  among  them  in  inverse 

)roportion  to  their  industry  and  thrift  and  forethought,  so 

bhat  many  thought  it  foolish  to  make  provision  for  the  future. 

'he  traditions  and  instincts,  which  were  fostered  by  that  evil 

experience,  are  even  now  a  great  hindrance  to  the  progress  of 

the  working  classes;   and  the  principle  which  nominally  at 

least  underlies  the  present  Poor-law,  that  the  State  should 

take  account  only  of  destitution  and  not  at  all  of  merit,  acts 

in  the  same  direction  though  with  less  force. 

Insecurity  of  this  kind  also  is  being  diminished :  the 
growth  of  enlightened  views  as  to  the  duties  of  the  State  and 
of  private  persons  towards  the  poor,  is  tending  to  make  it 


TH£  GROWTH   OF   WEALTH.  159 

every  day  more  true  that  those  who  have  helped  themselves, 
and  endeavoured  to  provide  for  their  own  future,  will  be  cared  f 
for  by  society  better  than  the  idle  and  the  thoughtless.     But  I 
the  progress  in  this  direction  remains  slow,  and  there  is  much^ 
to  be  done  yet. 

Again,  modern  methods  of  business  have  brought  with 
them  opportunities  for  the  safe  investment  of  capital  in  such 
ways  as  to  yield  a  revenue  to  persons  who  have  no  good 
opportunity  of  engaging  in  any  business, — not  even  in  that 
of  agriculture,  where  the  land  will  under  some  conditions  act 
as  a  trustworthy  savings-bank'.  These  new  opportunities  have 
induced  some  people  who  would  not  otherwise  have  attempted 
it  to  put  by  something  for  their  own  old  age.  i|  And,  what 
has  had  a  still  greater  effect  on  the  growth  of  wealth,  it  has 
rendered  it  far  easier  for  a  man  to  provide  a  secure  income 
for  his  wife  and  children  after  his  death  :  for,  after  all,  family 
affection  is  the  main  motive  of  saving. 

§  4.  That  men  labour  and  save  chiefly  for  the  sake  of 
their  families  and  not  for  themselves,  is  shown 
by  the  fact  that  they  seldom  spend,  after  they  tive  of  saving 
have  retired  from  work,  more  than  the  income  is  family  affec- 
that  comes  in  from  their  savings,  preferring  to 
leave  their  stored-up  wealth  intact  for  their  families;  while 
in  this  country  alone  twenty  millions  a  year  are  saved  in  the 
form  of  insurance  policies  and  are  available  only  after  the 
death  of  those  who  save  them. 

A  man  can  have  no  stronger  stimulus  to  energy  and  enter- 
prise than  the  hope  of  rising  in  life,  and  leaving  his  family  to 
start  from  a  higher  round  of  the  social  ladder  than  that  on 
which  he  began.  It  may  even  give  him  an  overmastering 
passion  which  reduces  to  insignificance  the  desire  for  ease, 
and  for  all  ordinary  pleasures,  and  sometimes  even  destroys  in 
him  the  finer  sensibilities  and  nobler  aspirations.  But,  as  is 
shown  by  the  marvellous  growth  of  wealth  in  America  during 

1  Other  influences  exerted  by  modern  methods  of  business  on  the  growth 
of  wealth  are  noticed  in  Principles  VI.  vn.  5. 


160  BOOK  IV.   CH.  VIL   §§  4,  5. 

the  present  generation,  it  makes  him  a  mighty  producer  and 
accumulator  of  riches;  unless  indeed  he  is  in  too  great  a  hurry 
to  grasp  the  social  position  which  his  wealth  will  give  him. 
For  his  ambition  may  then  lead  him  into  as  great  extrava- 
gance as  could  have  been  induced  by  an  improvident  and  self- 
indulgent  temperament. 

The  greatest  savings  are  made  by  those  who  have  been 
brought  up  on  narrow  means  to  stern  hard  work,  who  have 
retained  their  simple  habits,  in  spite  of  success  in  business, 
and  who  nourish  a  contempt  for  showy  expenditure  and  a 
desire  to  be  found  at  their  death  richer  than  they  had  been 
thought  to  be.  This  type  of  character  is  frequent  in  the 
quieter  parts  of  old  but  vigorous  countries,  and  it  was  very 
common  among  the  middle  classes  in  the  rural  districts  of 
England  for  more  than  a  generation  after  the  pressure  of  the 
great  French  war  and  the  heavy  taxes  that  lingered  in  its 
wake. 

§  5.     Next,  as  to  the  sources  of  accumulation.     The  power 

to  save  depends  on  an  exceSs  of  income  over  ne- 

accumuiation  *  cessary  expenditure ;  and  this  is  greatest  among 

IS  surplus  in-     ^j^g  wealthy.     In  this  country,  most  of  the  larajer 

come.    Profits.    .  "^  •^'  ^ 

incomes,  but  only  a  few  of  the  smaller,  ar^e  chiefly 

derived  from  capital.     And,  early  in  the  present  century,  the 

commercial  classes  in  England  had  much  more  saving  habits 

than  either  the  country  gentlemen  or  the  working  classes. 

ij=  These  causes  combined  to  make  English  economists  of  the  last 

1  generation  regard  savings  as  made  almost  exclusively  from 

^he  profits  of  capital. 

But  even  in  modern  England  rent  and  the  earnings  of 
professional  men  and  of  hired  workers  are  an  important  source 
Rent  and  earn-  of  accumulation:  and  they  have  been  the  chief 
^"S^-  source  of  it  in  all  the  earlier  stages  of  civiliza- 

tion. Moreover  the  middle,  and  especially  the  professional 
classes,  have  always  denied  themselves  much  in  order  to  invest 
capital  in  the  education  of  their  children ;  while  a  great  part 
of  the  wages  of  the  working  classes  is  invested  in  the  physical 


THE   GROWTH   OF   WEALTH.  161 

health  and  strength  of  their  children.  The  older  economists 
took  too  little  account  of  the  fact  that  human  faculties  are  a^^ 
important  a  means  of  production  9,s  jauy  other  kind  of  capital 
and  we  may  conclude,  in  opposition  to  them,  that  any  change 
in  the  distribution  of  wealth  which  gives  more  to  the  wage 
receivers  and  less  to  the  capitalists  is  likely,  other  things  being 
equal,  to  hasten  the  increase  of  material  production,  and  that; 
it  will  not  perceptibly  retard  the  storing-up  of  material  wealth.  . 
Of  course  other  things  would  not  be  equal,  if  the  change  were 
brought  about  by  violent  methods  which  gave  a  shock  to 
public  security,  ^^ut  a  slight  and  temporary  check  to  the 
accumulation  of  material  wealth  need  not  necessarily  be  an 
evil,  even  from  a  purely  economic  point  of  view,  if,  being 
made  quietly  and  without  disturbance,  it  provides  better 
opportunities  for  the  grpat  mass  of  the  people,  increases  their 
efficiency,  and  developes  in  them  such  habits  of  self-respect 
as  to  result  in  the  growth  of  a  much  more  efficient  race  of 
producers  in  the  next  generation.  For  then  it  may  do  more 
in  the  long-run  to  promote  the  growth  of  even  material  wealth 
than  great  additions  to  our  stock  of  factories  and  steam- 
engines. 

A  people  among  whom  wealth  is  well  distributed,  and  who 
have  high  ambitions,  are  likely  to  accumulate  a  _,  , ,. 

»  '  J  ^  Public  accu- 

great  deal  of  public  property ;    and  the  savings  muiations  of 
made  in  this  form  alone  by  some  well-to-do  demo-     ^^°"^'^^^^- 
cracies  form  no  inconsiderable  part  of  the  best  possessions 
which  our  own  age  has  inherited  from  its  predecessors.     The 
growth  of  the  co-operative  movement  in  all  its  many  forms, 
of    building    societies,    friendly    societies,    trades   unions,    of 
working  men's  savings-banks  cfec,  shows  that,  even 
so  far  as  the  immediate  accumulation  of  material 
wealth  goes,  the  resources  of  the  country  are  not,  as  the  older 
economists   assumeH,   entirely  Ioslw^n"^t^       are   spent   in 
^jing  :wages\  '""'  -  •^•*:.r.--.*..'-.r.-   . 

1  It  must  however  be  admitted  that  what  passes  by  the  name  of  pubhc 
property  is  often  only  nothing  more  than  private  wealth  borrowed  on  a  mort- 

M.  11 


162  BOOK  IV.   CH.  VII.   §  6. 

!§  6.  The  sacrifice  of  present  pleasure  for  the  sake  of 
_  ^  ....  future,  has  been  called  abstinence  by  economists. 
Interest  is  the  '  ,  J 

reward  of  wait-  But  this  term  has  been  misunderstood :  for  the 

':  *"^'  greatest  accumulators   of   wealth    are   very  rich 

persons,  some  of  whom  live  in  luxury,  and  certainly  do  not 
practise  abstinence  in  that  sense  of  the  term  in  which  it  is 
convertible  with  abstemiousness.  What  economists  meant  was 
that,  when  a  person  abstained  from  consuming  anything  which 
he  had  the  power  of  consuming,  with  the  purpose  of  increasing 
his  resources  in  the  future,  his  abstinence  from  that  particular 
act  of  consumption  increased  the  accumulation  of  wealth. 
Since,  however,  the  term  is  liable  to  be  misunderstood,  it 
is  better  to  say  that  the  accumulation  of  wealth  is  generally 
the  result  of  a  postponement  of  enjoyment,  or  of  a  waiting 
for  it\ 
/  This  willingness  to  wait  is  generally  increased  by  a  rise  in 
I  ^h^JT.^*®  ^f  interest  which  is  the  reward  of  waitijig.  Con- 
versely a  fall  in  the  rate  of  interest  generally  lowers  the 
margin  at  which  a  person  finds  it  just  not  worth 
changes  in  the  while  to  give  up  present  pleasures  for  the  sake  of 
rate  of  interest  those  future  pleasures  that  are  to  be  secured  by 

on  saving.  ^  '' 

saving  some  of  his  means.  It  will  therefore  gene- 
rally cause  people  to  consume  a  little  more  now,  and  to  make 
less  provision  for  future  enjoyment.  ^3ut  this  rule  is  not 
without  exception.\ 

For  indeed  Sir  Josiah  Child  remarked  two  centuries  ago, 
that  in  countries  in  which  the  rate  of  interest  is  high,  mer- 
chants "when  they  have  gotten  great  wealth,  leave  trading" 
and  lend  out  their  money  at  interest,  "  the  gain  thereof  being 
so  easy,  certain  and  great ;  whereas  in  other  countries  where 
interest  is  at  a  lower  rate,  they  continue  merchants  from  gene- 
ration to  generation,  and  enrich  themselves  and  the  state." 

gage  of  future  public  revenues.  Municipal  gas-works  for  instance  are  not 
generally  the  results  of  public  accumulations.  They  were  built  with  wealth 
saved  by  private  persons,  and  borrowed  on  public  account. 

1  A  further  study  of  the  nature  of  sacrifice  involved  in  waiting  is  made  in 
Principles  IV.  vni.  8,  9. 


THE   GROWTH   OF  WEALTH.  163 

And  it  is  as  true  now,  as  it  was  then,  that  many  men  retire 
from  business  when  they  are  yet  ahnost  in  the  prime  of  life, 
and  when  their  knowledge  of  men  and  things  might  enable 
them  to  conduct  their  business  more  efficiently  than  ever. 
Again,  as  Mr  Sargant  has  pointed  out,  if  a  man  has  decided 
to  go  on  working  and  saving  till  he  has  provided  a  certain 
income  for  his  old  age,  or  for  his  family  after  his  death,  he 
will  find  that  he  has  to  save  more  if  the  rate  of  interest  is  low 
than  if  it  is  high.  Suppose,  for  instance,  that  he  wishes  to 
provide  an  income  of  £400  a  year  on  which  he  may  retire 
from  business,  or  to  insure  £400  a  year  for  his  wife  and 
children  after  his  death  :  if  then  the  current  rate  of  interest  is 
5  per  cent.,  he  need  only  put  by  £8,000  or  insure  his  life  for 
£8,000;  but  if  it  is  4  per  cent.,  he  must  save  £10,000  or 
insure  his  life  for  £10,000. 

,  It  is  then  possible  that  a  continued  fall  in  the  rate  of 
interest  may  be  accompanied  by  a  continued  increase  in  the 
yearly  additions  to  the  world's  capital,  j^  But  none  the  less  is 
it  true  that  a  fall  in  the  distant  benefits  to  be  got  by  a  given 
amount  of  working  and  waiting  for  the  future  does  tend  on 
the  whole  to  diminish  the  provision  which  people  make  for 
the  future ;  or  in  more  modern  phrase,  that  a  fall  in  the  rate 
of  interest  tends  to  check  the  accumulation  of  wealth.  For 
though  with  man's  growing  command  over  the  resources  of 
nature,  he  may  continue  to  save  much  even  with  a  low  rate  of 
interest ;  yet,  while  human  nature  remains  as  it  is,  every  fall 
in  that  rate  is  likely  to  cause  many  more  people  to  save  less 
than  to  save  more  than  they  would  otherwise  have  done. 

To  sum  up  : — The  accumulation  of  wealth  is  governed  by 
a  great  variety  of  causes  :  by  custom,  by  habits  of  self-control  ll| 
and  realizing  the  future,  and  above  all  by  the  power  of  family/|| 
affection.     Security  is  a  necessary  condition  for  it,  and  the  pro- 
gress of  knowledge  and  intelligence  furthers  it  in  many  ways. 

A  rise  in  the  rate  of  interest,  or  demand  price  for  saving, 
tends  to  increase  the  volume  of  saving.  For  in  spite  of  the 
fact  that  a  few  people  who  have  determined  to  secure  an 

11—2 


164 


BOOK  IV.    CH.  Vll. 


§«■ 


income  of  a  certain  fixed  amount  for  themselves  or  their 
family  will  save  less  with  a  high  rate  of  interest  than  with  a 
low  rate,  it  is  a  nearly  universal  rule  that  a  rise  in  the  rate 
increases  the  desire  to  save ;  and  it  often  increases  the  power 
to  save,  or  rather  it  is  often  an  indication  of  an  increased 
efficiency  of  our  productive  resources. 

It  must  however  be  recollected  that  the  annual  investment 
of  wealth  is  a  small  part  of  the  already  existing  stock,  and 
that  therefore  the  stock  would  not  be  increased  perceptibly  in 
any  one  year  by  even  a  considerable  increase  in  the  annual 
rate  of  saving'. 

1  The  following  table  is  compiled  chiefly  from  data  collected  by  Mr  Giffen. 


Country  and 
Author  of 
Estimate. 

Land. 
£  million. 

Houses, 

&c. 
£  million. 

Farm- 
capital. 
£  million. 

Other 

wealth. 

£  million. 

Total 

wealth. 

£  million. 

Wealth 
per^cap. 

England. 

1690  (Gregory  King) 
1812  (Colquhomi)     . 
1885  (Giffen)  .     .     . 

180 

750 

1,333 

45 

300 

1,700 

25 

143 
382 

70 

653 

3,012 

320 
1,846 
6,427 

58 
180 
315 

United  Kingdom. 
1812  (Colquhoun)     . 
1865  (Giffen)  .     .     . 
1875  (Giffen)  .     .     . 
1885  (Giffen)  .     .     . 

1,200 
1,864 
2,007 
1,691 

400 
1,031 
1,420 
1,927 

228 
620 
668 
522 

208 
2,598 
4,453 
5,897 

2,736 
6,113 

8,548 
10,037 

160 
200 
260 
270 

United  States. 
1880  (Census)      .    . 

2,040 

2,000 

480 

4,208 

8,728 

175 

France. 
1878  (de  Foville)     . 

4,000 

1,000 

560 

2,440 

8,000 

215 

Italy. 
1884  (Pantaleoni)    . 

1,160 

360 

1,920 

65 

The  series  of  bad  harvests  and  the  difficulty  of  unporting  food  during  the 
great  war  at  the  beginnmg  of  this  century  impoverished  the  people  of  England, 
but  nearly  doubled  the  nominal  value  of  the  land  of  England.  Since  then  free 
trade,  the  improvements  in  transport,  the  opening  of  new  countries  and  other 
causes  have  lowered  the  nominal  value  of  that  part  of  the  land  v/hich  is 
devoted  to  agriculture,  but  have  added  much  to  the  real  wealth  of  the  people. 


CHAPTER   VIII. 

INDUSTRIAL   ORGANIZATION. 

§  1.     Writers  on  social  science  from  the  time  of  Plato 
downwards  have  delighted  to  dwell  on  the  in- 

1  .1     1    1  1      .  /.  T^«      doctrine 

creased  efficiency  which  labour  derives  from  or-  that  organiza- 
ganization.  \.  Adam  Smith  gave  a  vivid  descrip-  efficie^nc'^y  owes 
tioiT'Sf^he  aavantages  of  the  division  of  labour;  much  to  bio- 
he  pointed  out  how  they  render  it  possible  for 
increased  numbers  to  live  in  comfort  on  a  limited  territory  ;>^ 
and  he  argued  that  the  pressure  of  population  on  the  means  of 
subsistence  tends  to  weed  out  those  races  who  through  want 
of  organization  or  for  any  other  cause  are  unable  to  turn  to 
the  best  account  the  advantages  of  the  place  in  which  they 
live.  Before  two  more  generations  had  elapsed  Malthus'  his- 
torical account  of  man's  struggle  for  existence  set  Darwin 
thinking  as  to  the  effects  of  the  struggle  for  existence  in  the 
animal  world.  Since  that  time  biology  has  more  than  repaid 
her  debt ;  and  economists  have  learnt  much  from  the  profound 
analogies  which  have  been  discovered  between  industrial  or- 
ganization on  the  one  side  and  the  physical  organization  of  I 
the  higher  animals  on  the  other.  The  development  of  the 
organism,  whether  social  or  physical,  involves  a  greater  sub- 
division of  functions  between  its  separate  parts  on  the  one 
hand,  and  on  the  other  a  more  intimate  connection  between 
them.  Each  part  gets  to  be  less  and  less  self-sufficient,  to 
depend  for  its  well-being  more  and  more  on  other  parts,  so 
that  no  change  can  take  place  in  any  part  of  a  highly- 
developed  organism  without  affecting  others  also. 

This  increased  subdivision  of  functions,  or  "differentia- 


> 


166  BOOK  IV.   CH.  VIII.  §§  1,  2. 

tion"  as  it  is  called,  manifests  itself  witli  regard  to  industry 

in  such  forms  as  the  division  of  labour,  \and  the 

and  Integra-      development  of  specialized  skill,  knowledge  and 

**°"*  machinery  :     while     "integration,"     that     is,     a 

growing  intimacy  and  firmness  of  the  connections  between  the 

separate  parts  of  the  industrial  organism,  shows  itself  in  such 

'  forms  as  the  increase  of  security  of  commercial  credit,  and  of 

the  means  and  habits  of  communication  by  sea  and  road,  by 

^  railway  and  telegraph,  by  post  and  printing-press.     This  leads 

I  us  to  consider  the  main  bearings  in  economics  of  the  law  that 

the  struggle  for  existence  causes  those  organisms  to  multiply 

which  are  best  fitted  to  derive  benefit  from  their  environment. 

This  law  is  often  misunderstood ;  and  taken  to  mean  that 

those  organisms  tend  to  survive  which  are  best 

struggle  for    fitted  to  benefit  the  environment.     But  this  is  not 

surviva  .         .^^  meaning.     It  states  that  those  organisms  tend 

to  survive  which  are  best  fitted  to  utilize  the  environment  for 

their  own  purposes.   .  Now  those  that  utilize  the  environment 

ftiost,  may  turn  out  to  be  those  that  benefit  it  most.     But  it 

must  not  be  assumed  in  any  particular  case  that  they  are 

thus  beneficial,  without  special  study  of  that  case\ 

§  2.     Adam   Smith  was  aware  that  competition  did  not 
always  cause  the  survival  of  those  businesses  and 

Harmonies  "  i      i         p   i        •  ,  .   i  i 

and  discords  those  methods  oi  Dusmess  which  were  most  ad- 
vMuarrnd"^oi-  ^antageous  to  society ;  and  though  he  insisted  on 
lective  inter-      the  general  advantages  of  that  minute  division 

ests,  . 

of  labour  and  of  that  subtle  industrial  organi- 
zation which  were  being  developed  with  unexampled  rapidity 
in  his  time,  yet  he  was  careful  to  indicate  points  in  which 
the  system  failed,  and  incidental  evils  which  it  involved. 
But  many  of  his  followers  were  less  careful.  They  were  not 
contented  with  arguing  that  the  new  industrial  organization 
was  obtaining  victories  over  its  rivals  in  every  direction, 
and  that  this  very  fact  proved  that  it  met  a  want  of  the 
1  This  subject  is  discussed  at  some  length  in  Principles  IV.  viii.  2,  3. 


INDUSTRIAL   ORGANIZATION.  167 

times,  and  had  a  good  balance  of  advantages  over  disad- 
vantages :  but  they  went  further  and  applied  the  same  argu- 
ment to  all  its  details;  they  did  not  see  that  the  very 
strength  of  the  system  as  a  whole  enabled  it  to  carry  along 
with  it  many  incidents  which  were  in  themselves  evil.  For 
a  while  they  fascinated  the  world  by  their  romantic  accounts 
of  the  flawless  proportions  of  that  "natural"  organization 
of  industry  which  had  grown  from  the  rudimentary  germ 
of  self-interest.  They  depicted  each  man  selecting  his  daily 
work  with  the  sole  view  of  getting  for  it  the  best  pay 
he  could,  but  with  the  inevitable  result  of  choosing  that  in 
which  he  could  be  of  most  service  to  others.  They  argued 
for  instance  that,  if  a  man  had  a  talent  for  managing  business, 
he  would  be  surely  led  to  use  that  talent  for  the  benefit  of 
mankind  :  that  meanwhile  a  like  pursuit  of  their  own  interests 
would  lead  others  to  provide  for  his  use  such  capital  as  he 
could  turn  to  best  account ;  and  that  his  own  interest  would 
lead  him  so  to  arrange  those  in  his  employment  that  every- 
one should  do  the  highest  work  of  which  he  was  capable,  and 
no  other. 

This  "  natijral  organization  of  industry"  had  a  fascination 
for  earnest  and  thougKTOT*  minds"  •"'il  prevented  them  from 
seeing  and  removing  the  evil  that  was  intertwined  with  the 
good  in  the  changes  that  were  going  on  around  them ;  and  it 
hindered  them  from  inquiring  whether  many  even  of  the 
broader  features  of  modem  industry  may  not  be  transitional, 
having  indeed  good  work  to  do  in  their  time,  as  the  caste 
system  had  in  its  time :  but  like  it  chiefly  serviceable  in  lead- 
ing the  way  towards  better  arrangements  for  a  happier  age^. 

1  Physical  peculiarities  acquired  by  parents  during  their  life-time  are 
seldom,  if  ever,  transmitted.  But  the  children  of  those  who  lead  healthy  lives 
physically  and  morally  are  perhaps  born  with  a  firmer  fibre  than  others,  and 
certainly  are  more  likely  to  be  well  nourished,  well  trained,  to  acquire  whole- 
some instincts,  and  to  have  that  self-respect  which  is  a  mainspring  of  progress. 


Ac^ 


CHAPTER  IX. 

INDUSTRIAL     ORGANIZATION,     CONTINUED.        DIVISION     OF 
LABOUR.      THE   INFLUENCE   OF   MACHINERY. 

§  1.     The  first  condition  of  an  efficient  organization  of 

industry  is   that  it   should   keep   everyone   em- 

and  the  two     ployed  at  such  work  as  his  abilities  and  training 

following  f^^  }jjj^  ^Q  ^Q  well,  and  should  equip  him  with 

chapters.  i.  ii  ,. 

the  best  machinery  and  other  appliances  for  his 
work.  We  shall  confine  ourselves  to  the  division  of  labour 
between  different  classes  of  operatives,  with  special  reference 
to  the  influence  of  machinery.  In  the  following  chapter  we 
shall  consider  the  reciprocal  effects  of  division  of  labour  and 
localization  of  industry;  in  a  third  chapter  we  shall  inquire 
how  far  the  advantages  of  division  of  labour  depend  upon  the 
aggregation  of  large  capitals  into  the  hands  of  single  indi- 
viduals or  firms,  or,  as  is  commonly  said,  on  production  on  a 
large  scale ;  and  lastly,  we  shall  examine  the  growing  speciali- 
zation of  the  work  of  business  management. 

Everyone  is  familiar  with  the  fact  that  "practice  makes 
Practice  perfect,"  that  it  enables  an  operation,  which  at 

makes  perfect,  f^^st  seemed  difiicult,   to  be  done  after   a  time 
with  comparatively  little  exertion,  and  yet  much  better  than 
before;  and  physiology  in  some  measure  explains  this  fact\ 
Adam  Smith  pointed  out  that  a  lad  who  had  made  nothing 
but  nails  all  his  life  could  make  them  twice  as 
quickly  as  a  firstrate  smith  who  only  took  to  nail- 
making  occasionally.     Anyone  who  has  to   perform  exactly 

1  This  point  is  studied  in  some  detail  in  Principles  IV.  ix.  1. 


INDUSTRIAL  OllGANIZATION.      DIVISION  OF  LABOUR.     169 

the  same  set  of  operations  day  after  day  on  things  of  exactly 
the  same  shape,  gradually  learns  to  move  his  fingers  exactly 
as  they  are  wanted,  by  almost  automatic  action  and  with 
greater  rapidity  than  would  be  possible  if  every  movement 
had  to  wait  for  a  deliberate  instruction  of  the  will.  One 
familiar  instance  is  seen  in  the  tying  of  threads  by  children  in 
a  cotton  mill.  Again,  in  a  clothing  or  a  boot  factory,  a  person 
who  sews,  whether  by  hand  or  machinery,  just  the  same  seam 
on  a  piece  of  leather  or  cloth  of  just  the  same  size,  hour  after 
hour,  day  after  day,  is  able  to  do  it  with  far  less  effort  and  far 
more  quickly  than  a  worker  with  much  greater  quickness  of 
eye  and  hand,  and  of  a  much  higher  order  of  general  skill, 
who  was  accustomed  to  make  the  whole  of  a  coat  or  the  whole 
of  a  boot. 

Again,  in  the  wood  and  the  metal  industries,  if  a  man 
has  to  perform  exactly  the  same  operations  over  and  over 
again  on  the  same  piece  of  material,  he  gets  into  the  habit  of 
holding  it  exactly  in  the  way  in  which  it  is  wanted,  and  of 
arranging  the  tools  and  other*  things  which  he  has  to  handle 
in  such  positions  that  he  is  able  to  bring  them  to  work  on 
one  another  with  the  least  possible  loss  of  time  and  of  force  in 
the  movements  of  his  own  body.  Accustomed  to  find  them 
always  in  the  same  position  and  to  take  them  in  the  same 
order,  his  hands  work  in  harmony  with  one  another  almost 
automatically :  and,  as  he  becomes  more  practised,  his  expen- 
diture of  nervous  force  diminishes  even  more  rapidly  than  his 
expenditure  of  muscular  force. 

NjBut  when  the  action  has  thus  been  reduced  to  routine,  it 
has  nearly  arrived  at  the  stage  at  which  it  can 
be  taken  over  by  machinery.\The  chief  difiiculty  of  manuaf^a- 
to  be  overcome  is  that  of  getting  the  machinery  ^°"''    ^"^    °^ 

'    1   n       1      •  11  machinery, 

to  hold  the  material  firmly  m  exactly  the  position 
in  which  the  machine  tool  can  be  brought  to  bear  on  it  in  the 
right  way,  and  without  wasting  too  much  time  in  taking  grip 
of  it.     But  til  is  can  generally  be  contrived  when  it  is  worth 


170  BOOK  IV.   OH.  IX.   §§1,  2. 

while  to  spend  some  labour  and  expense  on  it ;  and  then  the 

whole  operation   can   often   be   controlled  by  a  worker  who, 

sitting  before  a  machine,  takes  with  the  left  hand  a  piece  of 

wood  or  metal  from  a  heap  and  puts  it  in  a  socket,  while  with 

the  right  he  draws  down  a  lever,  or  in  some  other  way  sets 

the  machine  tool  at   work,    and  finally  with   his    left   hand 

throws  on  to  another  heap  the  material  which  has  been  cut  or 

punched  or  drilled  or  planed  exactly  after  a  given  pattern. 

iThus  machinery  constantly  supplants  that  purely  manual  skill, 

I  the  attainment  of  which  was,  even  up  to  Adam  Smith's  time, 

I  the  chief  advantage  of  division  „of  labour.     But,  at  the  same 

I  ^me,  it  increases  the  scale  of  manufactures  and  makes  them 

i  more  complex ;  and,  on  the  whole,  increases  the  opportunities 

I  for  division  of  labour  of  all  kinds,  and  especially  in  the  matter 

of  business  management. 

§  2.  The  powers  of  machinery  to  do  work  that  requires 
too  much  accuracy  to  be  done  by  hand  are  perhaps  best  seen 
Interchange-  i^  some  branches  of  the  metal  industries  in  which 
able  Parts.  ^j^^  system  of  Interchangeable  Parts  is  being 
rapidly  developed.  It  is  only  after  long  training  and  with 
much  care  and  labour  that  the  hand  can  make  one  piece  of 
metal  accurately  to  resemble  or  to  fit  into  another :  and  after 
all  the  accuracy  is  not  perfect.  But  this  is  just  the  work 
which  a  well  made  machine  can  do  most  easily  and  most  per- 
fectly. For  instance,  if  sowing  and  reaping  machines  had  to 
be  made  by  hand,  their  first  cost  would  be  very  high;  and 
when  any  part  of  them  was  broken,  it  could  be  replaced  only 
at  great  cost  by  sending  the  machine  back  to  the  manufacturer 
or  by  bringing  a  highly  skilled  mechanic  to  the  machine.  But 
as  it  is,  the  manufacturer  keeps  in  store  many  facsimiles  of 
the  broken  part,  which  were  made  by  the  same  machinery, 
and  are  therefore  interchangeable  with  it.  A  farmer  in  the 
North- West  of  America,  perhaps  a  hundred  miles  away  from 
any  good  mechanic's  shop,  can  yet  use  complicated  machinery 
with  confidence;    since  he  knows  that  by  telegraphing  the 


_Li'  »)(axL  .  %^ 


INDUSTRIAL  ORGANIZATION.      DIVISION  OF  LABOUR.      l7l 

number  of  the  machine  and  the  number  of^  any  part  of  it 
which  he  has  broken,  he  will  get  by  the  next  train  a  new 
piece  which  he  can  himself  fit  into  its  place.  The  importance 
of  this  principle  of  interchangeable  parts  has  been  but  re- 
cently grasped;  there  are  however  many  signs  that  it  will 
do  more  than  any  other  to  extend  the  use  of  machine-made 
machinery  to  every  branch  of  production,  including  even 
domestic  and  agricultural  work. 

The  influences  which  machinery  exerts  over  the  character 
?  of  modern  industry  are  well  illustrated  in  the  the  watch- 
tnanufacture  of  watches.  A  few  years  ago  the  making  trade, 
chief  seat  of  this  business  was  in  French  Switzerland ;  where 
the  subdivision  of  labour  was  carried  far,  though  a  great  part 
of  the  work  was  done  by  a  more  or  less  scattered  population. 
There  were  about  fifty  distinct  branches  of  trade,  each  of 
which  did  one  small  part  of  the  work.  In  almost  all  of  them 
a  highly  specialized  manual  skill  was  required,  but  very  little 
judgment ;  the  earnings  were  generally  low,  because  the  trade 
had  been  established  too  long  for  those  in  it  to  have  anything 
like  a  monopoly,  and  there  was  no  difiiculty  in  bringing  up 
to  it  any  child  with  ordinary  intelligence.  But  this  industry 
is  now  yielding  ground  to  the  American  system  of  making 
watches  by  machinery,  which  requires  very  little  specialized 
majmal  skinr"  In  fact  the  machinery  is  becoming  every  year 
more  and  more  automatic,  and  is  getting  to  require  less  and 
less  assistance  from  the  human  hand.  But  the  more  delicate 
the  machine's  power,  the  greater  is  the  judgment  Machinery  in- 
and  carefulness  which  is  called  for  from  those  creases  the  de- 
who  see  after  it.  Take  for  instance  a  beautiful  rai  inteiii- 
machine  which  feeds  itself  with  steelwire  at  one  s^"'^^; 
end,  and  delivers  at  the  other  tiny  screws  of  exquisite  form  ; 
it  displaces  a  great  many  operatives  who  had  indeed  acquired 
a  very  high  and  specialized  manual  skill,  but  who  lived 
sedentary  lives,  straining  their  eyesight  through  microscopes, 
and  finding  in  their  work  very  little  scope  for  any  faculty 


172  BOOK  IV.  CH.  IX.  §§  2,  3. 

except  a  mere  command  over  the  use  of  their  fingers.  But 
the  machine  is  intricate  and  costly,  and  the  person  who  minds 
it  must  have  an  intelligence,  and  an  energetic  sense  of  respon- 
sibility, which  go  a  long  way  towards  making  a  fine  character; 
and  which,  though  more  common  than  they  were,  are  yet 
sufficiently  rare  to  be  able  to  earn  a  very  high  rate  of  pay. 
No  doubt  this  is  an  extreme  case ;  and  the  greater  part  of  the 
work  done  in  a  watch  factory  is  much  simpler.  But  much 
of  it  requires  higher  faculties  than  the  old  system  did,  and 
those  engaged  in  it  earn  on  the  average  higher  wages ;  at  the 
same  time  that  it  has  already  brought  the  price  of  a  trust- 
worthy watch  within  the  range  of  the  poorest  classes  of  the 
community,  and  it  is  showing  signs  of  being  able  soon  to  ac- 
complish the  very  highest  class  of  work. 

Those  who  finish  and  put  together  the  different  parts  of  a 
watch  must  always  have  highly  "p^^fliliri*^  f^^'^^  : 
barriers  be-  t)ut  most  of  the  machines  which  are  in  use  in  a 
tween  different  ^atch  factory,  are  not  different  in  general  cha- 
racter from  those  which  are  used  in  any  other  of 
the  lighter  metal  trades :  in  fact  many  of  them  are  mere 
modifications  of  the  turning  lathes  and  of  the  slotting,  punch- 
ing, drilling,  planing,  shaping,  milling  machines  and  a  few 
others,  which  are  familiar  to  all  engineering  trades.  This  is  a 
good  illustration  of  the  fact  that  while  there  is  a  constantly 
increasing  subdivision  of  labour,  many  of  the  lines  of  division 
between  trades  which  are  nominally  distinct  are  becoming 
narrower  and  less  difficult  to  be  passed.  In  old  times  it  would 
have  been  very  small  comfort  to  watch-makers,  who  happened 
to  be  suffering  from  a  diminished  demand  for  their  wares, 
to  be  told  that  the  gun-making  trade  was  in  want  of  extra 
hands;  but  most  of  the  operatives  in  a  watch  factory  would 
find  machines  very  similar  to  those  with  which  they  were 
familiar,  if  they  strayed  into  a  gun-making  factory  or  sewing- 
machine  factory,  or  a  factory  for  making  textile  machinery. 
A  watch  factory  with  those  who  worked  in  it  could  be  con- 


INDUSTRIAL  OUGANIZATION.      DIVISION  OF  LABOUR.      173 

verted  without  any  overwhelming  loss  into  a  sewing-machine 
factory :  almost  the  only  condition  would  be  that  no  one 
should  be  put  to  work  in  the  new  factory  which  required  a 
higher  order  of  general  intelligence,  than  that  to  which  he 
was  already  accustomed'. 

§  3.     "We  may  now   pass  to    consider   the  effects   which 
machinery  has  in  relieving  that  excessive  mus- 
cular strain  which  a  few  generations  ago  was  the  neves  the 
common  lot  of  more  than  half  the  working  men  strain  on  hu- 

^  man  muscles. 

even  in  such  a  country  as  England.  The  most 
marvellous  instances  of  the  power  of  machinery  are  seen  in 
large  iron-works,  and  especially  in  those  for  making  armour 
plates,  where  the  force  to  be  exerted  is  so  great  that  man's 
muscles  count  for  nothing,  and  where  every  movement,  whe- 
ther horizontal  or  vertical,  has  to  be  effected  by  hydraulic  or 
steam  force;  man  merely  standing  by  ready  to  govern  the  ma- 
chinery and  clear  away  ashes  or  perform  some  such  secondary 
task. 

Machinery:jQi.i;,Jlis^  class  has  increased  our  command  over 
nature,  but  it  has  not  directly  altered  the  character  of  man's 
work  very  much ;  for  that  which  it  does  he  could  not  have 
done  without  it.  \But  in  other  trades  machinery  has  lightened 
man's  labours.  \  The  house-carpenters,  for  instance,'  make  things 
of  the  same  kind  as  those  used  by  our  forefathers,  with  much 
less  toil  for  themselves.  They  now  give  themselves  chiefly  to 
those  parts  of  the  task  which  are  most  pleasant  and  most 
interesting;  while  in  every  country  town  and  almost  every 
village  there  are  found  steam  mills  for  sawing,  planing  and 
moulding,  which  relieve  them  of  that  grievous  fatigue  which 
not  very  long  ago  used  to^make  them  prematurely  old^. 

1  The  changes  in  the  methods  of  printing  are  almost  as  instructive  as  those 
in  watch-making.     They  are  traced  in  Principles  IV.  ix.  5. 

2  The  jack-plane,  used  for  making  smooth  large  boards  for  floors  and  other 
purposes,  was  the  worst  enemy  of  the  carpenter.  All  but  specially  skilled  men 
were  compelled  to  spend  a  great  part  of  their  time  with  the  jack-plane,  and 
this  brought  on  heart-disease,  making  them  as  a  rule  old  men  by  the  time  they 


174  BOOK  IV.   CH.  IX.  §§  3,  4. 

New  machinery,  when  just  invented,  generally  requires  a 
_-    , .  ffreat  deal  of  care  and  attention.     But  the  work 

Machinery  ^ 

takes  over  mo-  of  its    attendant   is    always   being   sifted;   that 

notonous  work       i  •   i      •  -i?  i  j  •  in 

which  IS  uniiorm  and  monotonous  is  gradually 
taken  over  by  the  machine,  which  thus  becomes  steadily  more 
and  more  automatic  and  self-acting ;  till  at  last  there  is  no- 
thing for  the  hand  to  do,  but  to  supply  the  material  at  certain 
intervals  and  to  take  away  the  work  when  finished.  There 
still  remains  the  responsibility  for  seeing  that  the  machinery 
is  in  good  order  and  working  smoothly ;  but  even  this  task  is 
often  made  light  by  the  introduction  of  an  automatic  move- 
ment, which  brings  the  machine  to  a  stop  the  instant  anything 
goes  wrong. 

Nothing  could  be  more  narrow  or  monotonous  than  the 
occupation  of  a  weaver  of  plain  stuffs  in  the  old  time.  But 
now  one  woman  will  manage  four  or  more  looms,  each  of 
which  does  many  times  as  much  work  in  the  course  of  the 
day  as  the  old  hand-loom  did;  and  her  work  is  much  less 
monotonous  and  calls  for  much  more  judgment  than  his  did. 
So  that  for  every  hundred  yards  of  cloth  that  are  woven,  the 
purely  monotonous  work  done  by  human  beings  is  probably 
not  a  twentieth  part  of  what  it  was. 

">»^s  Roscher  says,  it  is  monotony  of  life  much  mc^e  than 
and  lessens  monotony  of  work  that  is  to  be  dreaded  :  ynono- 
monotonyof      tony  of  work  is  an  evil  of  the  first  order  only 

when  it  involves  monotony  of  life.     Now  when  a 

were  forty.  But  now  those  who  become  prematurely  old  through  overwork 
are  to  be  found  almost  exclusively  among  the  professional  classes,  among 
those  engaged  in  the  more  anxious  kinds  of  business,  and  in  some  agricultui-al 
districts  in  which  the  rate  of  wages  is  still  very  low  and  the  people  are  habitu- 
ally underfed.  Adam  Smith  tells  us  that  "workmen,  when  they  are  liberally 
paid,  are  very  apt  to  overwork  themselves  and  to  ruin  their  health  and  consti- 
tution in  a  few  years.  A  carpenter  in  London,  and  in  some  other  places,  is 
not  supposed  to  last  in  his  utmost  vigour  above  eight  years.... Almost  every 
class  of  artificers  is  subject  to  some  particular  infirmity  occasioned  by  exces- 
sive application  to  their  peculiar  species  of  work."  Wealth  of  Nations,  Book  i. 
Chapter  vu. 


INDUSTRIAL  ORGANIZATION.      DIVISION  OF  LABOUR. 


175 


person's  employment  requires  much  physical  exertion,  he  is  fit 
for  nothing  after  his  work ;  and  unless  his  mental  faculties 
are  called  forth  in  his  work,  they  have  little  chance  of  being 
developed  at  all.  But  the  nervous  force  is  not  very  much 
exhausted  in  the  ordinary  work  of  a  factory,  at  all  events 
where  there  is  not  excessive  noise,  and  where  the  hours  of 
labour  are  not  too  long.  The  social  surroundings  of  factory 
life  stimulate  mental  activity  in  and  out  of  working  hours ; 
and  even  those  factory  workers,  whose  occupations  are  seem- 
ingly the  most  monotonous,  have  more  intelligence  and  mental 
resource  than  has  been  shown  by  the  English  agricultural 
labourer,  whose  employment  has  more  variety.  It  is  true 
that  the  American  agriculturist  is  an  able  man,  and  that  his 
children  rise  rapidly  in  the  world.  But  partly  because  land 
has  been  plentiful,  and  he  has  generally  owned  the  farm  that 
he  cultivates,  he  has  had  better  social  conditions  than  the 
English ;  he  has  always  had  to  think  for  himself,  and  has  long 
had  to  use  and  to  repair  complex  machines.  The  English 
agricultural  labourer  has  had  many  great  disadvantages  to 
contend  with ;  but  is  steadily  improving  his  position. 

§  4.    We  may  next  consider  what  are  the  conditions  under 
which  the  economies  in  production  arising  from 
division  of   labour  can  best  be  secured.     It  is  ofSnandma- 
obvious  that  the  efficiency  of  specialized  machi-  chinery  cannot 

f  ^  .   .  be    carried   far 

nery  or  specialized  skill  is  but  one  condition  of  unless thescaie 
its  economic  use;  the  other  is  that  sufficient  work  °^  ia^g°e."'^*^°" 
should  be  found  to  keep  it  well  employed.  As 
Babbage  pointed  out,  in  a  large  factory  "the  master  manu- 
facturer by  dividing  the  work  to  be  executed  into  different 
processes,  each  requiring  different  degrees  of  skill  or  force, 
can  purchase  exactly  that  precise  quantity  of  both  which  is 
necessary  for  each  process ;  whereas  if  the  whole  work  were 
executed  by  one  workman  that  person  must  possess  sufficient 
skill  to  perform  the  most  difficult  and  sufficient  strength  to 
execute  the  most  laborious  of  the  operations  into  which  the 


176  BOOK  IV.    CH.  IX.   §  4. 

work  is  divided."  The  economy  of  production  requires  .not 
only  that  each  person  should  be  employed  constantly  in  a 
nan'qw  range  of  work,  but  also  that,  when  it  is  necessary  for 

fim  to  undertake  different  tasks,  each  of  these  tasks  should 
e  such  as  to  call  forth  as  much  as  possible  of  his  skill  and 
biljty.  Just  in  the  same  way  the  economy  of  machinery 
retjuires  that  a  powerful  turning-lathe  when  specially  arranged 
for  one  class  of  work  should  be  kept  employed  as  long  as 
possible  on  that  work ;  and  if  after  all  it  is  necessary  to 
employ  it  on  other  work,  that  should  be  such  as  to  be  worthy 
of  the  lathe,  and  not  such  as  could  have  been  done  equally 
well  by  a  much  smaller  machine. 

Many  of  those  economies  in  the  use  of  specialized  skill  and 
machinery  which  are  commonly  regarded  as  within  the  reach 
of  very  large  establishments,  do  not  depend  on  the  size  of  indi- 
vidual factories.  Some  depend  on  the  aggregate  production  of 
the  kind  in  the  neighbourhood ;  while  others  again,  especially 
those  connected  with  the  growth  of  knowledge  and  the  pro- 
gress of  the  arts,  depend  chiefly  on  the  aggregate  volume  of 
production  in  the  whole  civilized  world.  And  here  we  may 
introduce  two  technical  terms,  ^^e  may  divide  the  economies 
arising  from  an  increase  in  the  scaSie  of  production  of  any  kind 
{ External  and  ^^  goods,  into  two  classes\those  dependent  on 
I  Internal  Eco-/ the  genfiTal  development  of  the  industry  and 
omies.  ,:^^  those  dependent  on  the  resources  of  the  indivi- 
dual houses  of  business  engaged  and  the  efficiency  of  their 
management.  And  we  may  call  the  former  ExTERjy^  Eco- 
nomies, and  the  latter  Intert^l  Economies.  In  the  present 
chapter  we  have  been  chiefly  discussing  Internal  economies; 
but  we  now  proceed  to  examine  those  very  important  External 
economies  which  can  often  be  secured  by  the  concentration  of 
many  small  businesses  of  a  similar  character  in  particular 
localities :  or,  as  is  commonly  said,  by  the  Localization  of 
Industry. 


^b^'^ 


1^" 


CHAPTER  X. 

INDUSTRIAL  ORGANIZATION  CONTINUED.  THE  CONCENTRA- 
TION OF  SPECIALIZED  INDUSTRIES  IN  PARTICULAR 
LOCALITIES. 

§  1.     In  an  early  stage  of  civilization  every  place  had  to 
depend  on  its  own   resmyices  for   most   of   the 
heavy  wares  which  it  consumed;   unless  indeed  forms^ofiocai- 
it  happened  to  have  special  facilities  for  water  ^^f^  indus- 
carriage.     But  the  slowness  with  which  customs 
changed,  made  it  easy  for  producers  to  meet  the  wants  of 
consumers  with  whom  they  had  little  communication ;  and  it 
enabled  comparatively  poor  people  to  buy  a  few  expensive 
goods  from  a  distance,  in  the  security  that  they  would  add  to 
the  pleasure  of  festivals  and  holidays  during  a  life-time,  or 
perhaps  even  during  two  or  three  life-times.     Consequently 
the  lighter  and  more  expensive  articles  of  dress  and  personal 
adornment,   together   with  spices  and  some  kinds   of   metal 
implements  used  by  all  classes,  and  many  other  things  for  the 
special  use  of  the  rich,  often  came  from  astonishing  distances. 

Many  various  causes  have  led  to  the  localization  of  indus- 
tries, but  the  chiefhave  been  physical ;  such  as 
the  character  of  the  climate  ancT'tlie  soil,  or  the  origins^  of 
existence   of  mines  anJ  quarries  in   the   neigh-  focalized  in- 
bourhood,  or  within  easy  access  by  land  or  water. 
Thus  metallic  industries  have  generally  been  either  near  mines 
or  in  places  where  fuel  was  cheap.     The  iron  industries  in 
England  first  sought  those  districts  in  which  charcoal   was 
plentiful,  and  afterwards  they  went  to  the  neighbourhood  of 
M.  12 


178  BOOK  IV.    CH.  X.   §§1,  2. 

collieries.  Staffordshire  makes  many  kinds  of  pottery,  all  the 
materials  of  which  are  imported  from  a  long  distance ;  but 
she  has  cheap  coal  and  excellent  clay  for  making  the  heavy 
"seggars"  or  boxes  in  which  the  pottery  is  placed  while  being 
fired.  Straw  plaiting  has  its  chief  home  in  Bedfordshij:*e, 
where  straw  has  just  the  right  proportion  of  silex  to  give 
strength  without  brittleness;  and  Buckinghamshire  beeches 
have  afforded  the  material  for  the  "Wycombe  chairmaking. 
The  Sheffield  cutlery  trade  is  due  chiefly  to  the  excellent  grit 
of  which  its  grindstones  are  made. 

Another  chief  cause  has  been  the  patronage  of  a  court. 
The  rich  folk  there  assembled  make  a  demand  for  goods  of 
specially  high  quality;  and  this  attracts  skilled  workmen  from 
a  distance,  and  educates  those  on  the  spot.  Thus  the  mecha- 
nical faculty  of  Lancashire  is  said  to  be  due  to  the  influence 
of  Norman  smiths  who  were  settled  at  Warrington  by  Hugo 
de  Lupus  in  William  the  Conqueror's  time.  And  the  greater 
part  of  England's  manufacturing  industry  before  the  era  of 
cotton  and  steam  had  its  course  directed  by  settlements  of 
Flemish  and  Huguenot  artisans ;  many  of  which  were  made 
under  the  immediate  direction  of  Plantagenet  and  Tudor 
kings.  These  immigrants  taught  us  how  to  weave  woollen 
and  worsted  stuffs,  though  for  a  long  time  we  sent  our  cloths 
to  the  Netherlands  to  be  fulled  and  dyed.  They  taught  us 
how  to  cure  herrings,  how  to  manufacture  silk,  how  to  make 
lace,  glass,  and  paper,  and  to  provide  for  many  other  of  our 
wants. 

§  2.  When  an  industry  has  once  thus  chosen  a  locality 
for  itself,  it  is  likely  to  stay  there  long :  so  great 
localized  in-  ^re  the  advantages  which  people  following  the 
rediSr  skm^"  ®^™®  skilled  trade  get  from  near  neighbourhood 
to  one  another.  The  mysteries  of  the  trade  be- 
come no  mysteries ;  but  are  as  it  were  in  the  air,  and  children 
learn  many  of  them  unconsciously.  Good  work  is  rightly 
appreciated ;  inventions  and  improvements  in  machinery,  in 


LOCALIZED   INDUSTRIES.  179 

processes  and  the  general  organization  oi'  the  business  have 
their  merits  promptly  discussed  ;  if  one  man  starts  a  new  idea 
it  is  taken  up  by  others  and  combined  with  suggestions  of 
their  own,  and  thus  becomes  the  source  of  further  new  ideas. 
And  presently  subsidiary  trades  grow  up  in  the  subsidiary 
neighbourhood,  supplying  it  with  implements  and  trades ; 
materials,  organizing  its  traffic,  and  in  many  ways  conducing 
to  the  economy  of  its  material. 

Again,  the  economic  use  of  expensive  machinery  can  some- 
times be  attained  in  a  very  high  degree  in  a  specialized 
district  in  which  there  is  a  large  aggregate  pro-  machinery; 
duction  of  the  same  kind,  even  though  no  individual  capital 
employed  in  the  trade  be  very  large.  For  subsidiary  indus- 
tries devoting  themselves  each  to  one  small  branch  of  the 
process  of  production,  and  working  it  for  a  great  many  of 
their  neighbours,  are  able  to  keep  in  constant  use  machinery 
of  the  most  highly  specialized  character ;  and  to  make  it  pay 
its  expenses,  though  its  original  cost  may  have  been  high,  and 
its  rate  of  depreciation  very  rapid. 

Again,  in  all  but  the  earliest  stages  of  economic  develop- 
ment a  localized  industry  gains  a  great  advantage  local  market 
from  the  fact  that  it  offers  a  constant  market  for  ^°^  ^^^^^^ 
skill.  Employers  are  apt  to  resort  to  any  place  where  they 
are  likely  to  fin.d  a  good  choice  of  workers  with  the  special 
skill  which  they  require;  while  men  seeking  employment 
naturally  go  to  places  where  they  expect  to  find  a  good  market 
for  their  skill,  in  consequence  of  the  presence  of  many  em- 
(ployers  who  require  its  aid.  The  owner  of  an  isolated  factory 
4s  often  put  to  great  shifts  for  want  of  some  special  skilled 
labour  which  has  suddenly  run  short ;  and  a  skilled  workman, 
■  when  thrown  out  of  employment  in  it,  has  no  easy  refuge. 

On  the  other  hand  a  localized  industry  has  some  disad- 
vantages as  a  market  for  labour  if  the  work  done  in  it  is 
chiefly  of  one  kind,  such  for  instance  as  can  be  done  only  by 
strong  men.     In  those  iron  districts  in  which  there  are  no 

12—2 


180  BOOK  IV.   CH.  X.   §  2. 

textile  or  otlier  factories  to  give  employment  to  women  and 
But  there  may  p^i^^^®^'  wages  are  high  and  the  cost  of  labour 
be  too  exten-ldear  to  the  employer,  while  the  average  money 

sive  a  demand^  .  f  u  t        '\  i  -d    ^  x^  / 

for  one  kind  of  earnings  ot  each  lamily  are  low.  But  the  remedy 
labour.  £^j.  ^j^-g  g^- j  -g  Q^yious,  and  is  found  in  the  growth 

in  the  same  neighbourhood  of  industries  of  a  supplementary 
character.  Thus  textile  industries  are  constantly  found  con- 
jgregated  in  the  neighbourhood  of  mining  and  engineering 
industries,  in  some  cases  having  been  attracted  by  almost 
imperceptible  steps ;  in  others,  as  for  instance  at  Barrow, 
having  been  started  deliberately  on  a  large  scale  in  order  to 
give  variety  of  employment  in  a  place  where  previously  there 
had  been  but  little  demand  for  the  work  of  women  and 
children. 

The  advantages  of  variety  of  employment  are  combined 
with  those  of  localized  industries  in  some  of  our  manufacturing 
towns,  and  this  is  a  chief  cause  of  their  continued  growth. 
But  on  the  other  hand  the  value  which  the  central  sites  of  a 
large  town  have  for  trading  purposes,  enables  them  to  com- 
mand much  higher  ground-rents  than  the  situations  are  worth 
for  factories,  even  when  account  is  taken  of  this  combination 
of  advantages  :  and  there  is  a  similar  competition  for  dwelling 
space  between  the  employes  of  the  trading  houses,  and  the 
factory  workers.  The  result  is  that  factories  now  congregate 
in  the  outskirts  of  large  towns  and  in  manufacturing  districts 
in  their  neighbourhood  rather  than  in  the  towns  themselves. 

A  district  which  is  dependent  chiefly  on  one  industry  is 
liable  to  extreme  depression,  in  case  of  a  falling- 
?ustries*in  the  ^^  ^^  *^®  demand  for  its  produce,  or  of  a  failure 
same  neigh-  in  the  Supply  of  the  raw  material  which  it  uses, 
mitigate  each  This  evil  again  is  in  a  great  measure  avoided  by 
other's  depres-  ^}jQgQ  large  towns,  or  large  industrial  districts  in 

sions.  »  )  & 

which  several  distinct  industries  are  strongly  de- 
veloped. If  one  of  them  fails  for  a  time,  the  others  are  likely 
to  support  it  in  many  ways,  chiefly  indirect ;    one  of   these 


LOCALIZED  INDUSTRIES.  181 

being  that  they  keep  in  heart  the  local  shopkeepers,  who  are 
thus  enabled  to  continue  their  assistance  longer  than  they 
otherwise  could,  to  the  workpeople  in  those  trades  that  happen 
to  be  depressed. 

It  is  instructive  to  study  the  influence  of  improved  means 
of  communication  on  the  character  of  England's 
industries.     The  agricultural  population  has  di-  distribution  of 
minished  relatively  to  the  rest,  though  not  so  fast  England's 


/ 


as  is  commonly  supposed.     Manufacture  employs 

a  rather  smaller  proportion  of  the  population  th^'ib^^iSBSrat*'^^  ^^ 

generation  ago.     But  there  has  been  a  great  increase  in  in- 9h^lcJi 

dustries  in  which  the  progress  of  invention  has  done  little 

towards  economizing  ejffort,  and  which  meet  growing  demands : 

the  chief  of  these  are  education,  domestic  service,  building, 

dealing,  and  transport  by  road\ 

1  This  subject  is  discussed  at  more  length,  especially  as  regards  agricul- 
ture, in  Principles  IV.  x.  4. 


CHAPTER  XL 

INDUSTRIAL   ORGANIZATION,   CONTINUED.      PRODUCTION 
ON   A  LARGE   SCALE. 

§  1.     The  advantages  of  production  on  a  large  scale  are 
best  shown  in  manufacture;  under  which  head 

Manufacture  •      i     i         n    i        •  i    . 

is  typical  for     WO  may  include  all  businesses  engaged  m  work- 
our    present     jj^^  ^p  material  into  forms  in  which  it  will  be 

purpose.  lie  1       . 

adapted  for  sale  m  distant  markets.  The  cha- 
racteristic of  manufacturing  industries  which  makes  them 
offer  generally  the  best  illustrations  of  the  advantages  of  pro- 
duction on  a  large  scale,  is  their  power  of  choosing  freely 
the  locality  in  which  they  will  do  their  work.  They  are 
thus  contrasted  on  the  one  hand  with  agriculture  and  other 
extractive  industries  (mining,  quarrying,  fishing  etc.),  the  geo- 
graphical distribution  of  which  is  determined  by  nature ;  and 
on  the  other  hand  with  industries  that  make  or  repair  things 
to  suit  the  special  needs  of  individual  consumers,  from  whom 
they  cannot  be  far  removed,  at  all  events  without  great  loss. 
The  chief  advantages  of  production  on  a  large  scale  are 
Economy  of  economy  of  skill,  economy  of  machinery  and  eco- 
matenai.  nomy  oT  materials :  but  the  last  of  these  is  rapidly 
losing  importance  relatively  to  the  other  two.  It  is  true  that 
an  isolated  workman  often  throws  away  a  number  of  small 
things  which  would  have  been  collected  and  turned  to  good 
account  in  a  factory;  but  waste  of  this  kind  can  scarcely 
occur  in  a  localized  manufacture  even  if  it  is  in  the  hands  of 
small  men ;  and  there  is  not  very  much  of  it  in  any  branch 


PRODUCTION   ON   A   LARGE   SCALE.  188 

of    industry    in    modern    England,    except    agriculture    and 
domestic  cooking'. 

But  small  factories  are  still  placed  under  a  great  disadvan- 
tage, even  in  a  localized  industry,  by  the  growing  specialized 
variety  and  expensiveness  of  machinery.  For  in  machinery, 
a  large  establishment  there  are  often  many  expensive  machines 
each  made  specially  for  one  small  use.  Each  of  them  requires 
space  in  a  good  light,  and  thus  stands  for  something  consider- 
able in  the  rent  and  general  expenses  of  the  factory;  and 
independently  of  interest  and  the  expense  of  keeping  it  in 
repair,  a  heavy  allowance  must  be  made  for  depreciation  in 
consequence  of  its  being  probably  improved  upon  before  long. 
A  small  manufacturer  must  therefore  have  many  things  done 
by  hand  or  by  imperfect  machinery,  though  he  knows  how  to 
have  them  done  better  and  cheaper  by  special  machinery,  if 
only  he  could  find  constant  employment  for  it. 

But  next,  a  small  manufacturer  may  not  always  be  ac- 
quainted with  the  best  machinery  for  his  purpose,  improvements 
It  is  true  that  if  the  industry  in  which  he  is  in  machinery, 
engaged  has  been  long  established  on  a  large  scale,  his  ma- 
chinery will  be  well  up  to  the  mark,  provided  he  can  afford  to 
buy  the  best  in  the  market.  In  agriculture  and  the  cotton 
industries  for  instance,  improvements  in  machinery  are  devised 
almost  exclusively  by  machine  makers;  and  they  are  accessible 
to  all,  at  any  rate  on  the  payment  of  a  royalty  for  patent 
right.     But  this  is  not  the  case  in  industries  that  are  as  yet 

1  No  doubt  many  of  the  most  important  advances  of  recent  years  have 
been  due  to  the  utilizing  of  what  had  been  a  waste  product ;  but  this  has  been 
generally  due  to  a  distinct  invention,  either  chemical  or  mechanical,  the  use 
of  which  has  been  indeed  promoted  by  minute  subdivision  of  labour,  but  has 
not  been  directly  dependent  on  it. 

Again,  it  is  true  that  when  a  hundred  suits  of  furniture,  or  of  clothing, 
have  to  be  cut  out  on  exactly  the  same  pattern,  it  is  worth  while  to  spend 
great  care  on  so  planning  the  cutting  out  of  the  boards  or  the  cloth,  that  only 
a  few  small  pieces  are  wasted.  But  this  is  properly  an  economy  of  skill;  one 
planning  is  made  to  suffice  for  many  tasks,  and  therefore  can  be  done  well  and 
carefully. 


/; 


184  BOOK  IV.   CH.  XI.  §§  1,  2. 

in  an  early  stage  of  development  or  are  rapidly  changing  their 
form;  such  as  the  chemical  industries,  the  watchmaking  in- 
dustry and  some  branches  of  the  jute  and  silk  manufactures ; 
and  in  a  host  of  trades  that  are  constantly  springing  up  to 
supply  some  new  want  or  to  work  up  some  new  material. 

There  are  however  some  trades  in  which  the  advantages 


which  a  large  factory  derives  from  the  economy  of  machinery 
*almost  vanish  as  soon  as  a  moderate  size  has  been  reached. 
For  instance  in  cotton  spinning,  and  calico  weaving,  a  com- 
paratively small  factory  will  hold  its  own  and  give  constant 
employment  to  the  best  known  machines  for  every  process :  so 
that  a  large  factory  is  only  several  parallel  smaller  factories 
under  one  roof;  and  indeed  some  cotton-spinners,  when  en- 
larging their  works,  think  it  best  to  add  a  weaving  depart- 
ment. In  such  cases  the  large  business  gains  little  or  no 
economy  in  machinery;  but  even  then  it  generally  saves  some- 
thing in  building,  particularly  as  regards  chimneys,  in  the 
economy  of  steam  power,  and  in  the  management  and  repairs 
of  engines  and  machinery.  \  This  last  point  is  of  rather  more 
importance  than  appears  at  first  sight ;  and  large  works  even 
though  they  produce  nothing  but  soft  goods,  have  generally 
well-organized  carpenters'  and  mechanics'  shops,  which  not 
only  diminish  the  cost  of  repairs,  but  have  the  important 
advantage  of  preventing  delays  from  accidents  to  the  plant. 

/Akin  to  these  last,  there  are  a  great  many  advantages 
Buying  and  which  a  large  factory,  or  indeed  a  large  business 
selling.  q£  almost  any  kind,   nearly  always  has  over  a 

small  one.     A  large  business  buys  in  great  quantities  and 
therefore  cheaply ;  it  pays  low  freights  and  saves  on  carriage 
in  many  ways,  particularly  if  it  has  a  railway  siding.     It 
often  sells  in  large  quantities,  and  thus  saves  itself  trouble; 
I  and  yet  at  the  same  time  it  gets  a  good  price,  because  it  offers 
!  conveniences  to  the  customer  by  having  a  large  stock  from 
I  which  he  can  select  and  at  once  fill  up  a  varied  order ;  while 
its  reputation  gives  him  confidence.     It  can  spend  large  sums 


PRODUCTION   ON   A  LARGE   SCALE.  185 

on  advertising  by  commercial  travellers  and  in  other  ways; 
its  agents  give  it  trustworthy  information  on  trade  and  per- 
sonal matters  in  distant  places,  and  its  own  goods  advertise 
one  another. 

Many  of  these  economies  in  the  matter  of  buying  and 
selling  can  be  secured  by  a  large  trading  house,  Alliance  be- 
which  puts  out  its  work  to  be  done  by  small  tween   large 
manufacturers  or  by  workpeople  at   their   own  small  produ- 
homes.     So  far  therefore  they  do  not  tell  in  the  ^^^^' 
direction  of  destroying  small  manufacturers,   but  rather   of 
limiting  the  character  of  the  work  of  business  management 
done  by  them;  as  we  shall  see  more  fully  in  the  next  chapter. 

Next,  with  regard  to  the  economy  of  skill.  Everything 
that  has  been  said  with  regard  to  the  advantages  specialized 
which  a  large  esta])lishin(?iit  has  in  being  able  to  ^^*^^' 
afford  highly  specialized  machinery  applies  equally  with  regard 
to  highly  specialized  skill.  It  can  contrive  to  keep  each  of 
its  employes  constantly  engaged  in  the  most  difficult  work  of 
which  he  is  capable,  and  yet  so  to  narrow  the  range  of  his 
work  that  he  can  attain  the  facility  and  excellence  which 
come  from  long-continued  practice  \ 

§  2.     The   head  of   a  large  business  can  reserve  all  his 
strength  for  the  broadest  and  most  fundamental 
problems  of   his  trade :    he  must  indeed  assure  manufacturer 
himself  that  his  managers,  clerks  and  foremen  self  whou^'^ 
are  the  right  men  for  their  work,  and  are  doing  broad  ques- 
their  work  well ;   but  beyond  this  he  need  not    *°"^  °  ^°  ^^^' 
trouble  himself  much  about  details.     He  can  keep  his  mind 
fresh  and  clear  for  thinking  out  the  most  difficult  and  vital 
problems  of  his  business ;   for   studying   the  broader  move- 
ments of  the  markets,  the  yet  undeveloped  results  of  current 
events  at  home  and  abroad;  and  for  contriving  how  to  improve 


1  Several  additional  but  minor  economies  available  by  large  factories  are 
noticed  in  Frincijjles  IV.  xi.  1,  2,  3. 


k 


186  BOOK  IV.    CH.  XI.   §  2. 

the  organization  of  the  internal  and  external  relations  of  his 
business. 

For  much  of  this  work  the  small  employer  has  not  the 
time  if  he  has  the  ability ;  he  cannot  take  so  broad  a  survey 
of  his  trade,  or  look  so  far  ahead ;  he  must  often  be  content 
to  follow  the  lead  of  others.  And  he  must  spend  much  of  his 
time  on  work  that  is  below  him ;  for  if  he  is  to  succeed  at  all, 
his  mind  must  be  in  some  respects  of  a  high  quality,  and 
must  have  a  good  deal  of  originating  and  organizing  force; 
and  yet  he  must  do  much  routine  work. 

On  the  other  hand  the  small  employer  has  advantages  of 
The  small  ^^^  own.  The  master's  eye"is~every wHere ;  there 
manufacturer    jg  no  shirking  by  his  foremen  or  workmen,  no 

can  save  in         ^.    .  ^     ^  .,  .,.  ,. 

superintend-  divided  responsibility,  no  sending  half-understood 
*"'^®'  messages  backwards  and  forwards  from  one  de- 

partment to  another.  He  saves  much  of  the  book-keeping, 
and  nearly  all  of  the  cumbrous  system  of  checks  that  are 
necessary  in  the  business  of  a  large  firm ;  and  the  gain  from 
this  source  is  of  very  great  importance  in  trades  which  use 
the  more  valuable  metals  and  other  expensive  materials. 

And  though  he  must  always  remain  at  a  great  disadvant- 
and  he  gains  ^S®  ^^  getting  information  and  in  making  experi- 
much  from  the  ments,  yet  in  this  matter  the  general  course  of 

modern    diffu-  *'  ° 


sion 


of  trade-  progress  is  on  his  side.  For  External  economies 
knowledge.  ^^^  constantly  growing  in  importah<?e  relatively 
to  Internal  in  all  matters  of  trade-knowledge :  B^^wspapers, 
and  trade  and  technical  publications  of  all  kinds  are  per- 
petually scouting  for  him  and  bringing  him  much  of  the 
knowledge  he  wants — knowledge  which  a  little  while  ago 
would  have  been  beyond  the  reach  of  anyone  who  could  not 
afford  to  have  well-paid  agents  in  many  distant  places.  Again, 
it  is  to  his  interest  also  that  the  secrecy  of  business  is  on  the 
whole  diminishing,  and  that  the  most  important  improvements 
in  method  seldom  remain  secret  for  long  after  they  have 
passed  from  the  experimental  stage.     It  is  to  his  advantage 


PRODUCTION   ON   A   LARGE  SCALE.  187 

that  changes  in  manjifacture  depend  less  on  mere  rules  of 
thumb  and  more  on  broad  developments  of  scientific  principle; 
and  that  many  of  these  are  made  by  students  in  the  pursuit 
of  knowledge  for  its  own  sake,  and  are  promptly  published 
in  the  general  interest.  Although  therefore  the  small  manu- 
facturer can  seldom  be  in  the  front  of  the  race  of  progress,  he 
need  not  be  far  from  it,  if  he  has  the  time  and  the  ability  for 
availing  himself  of  the  modern  facilities  for  obtaining  know- 
ledge. But  it  is  true  that  he  must  be  exceptionally  strong  if 
he  can  do  this  without  neglecting  the  minor  but  necessary 
details  of  the  business. 

The  advantages  which  a  large  business  has  over  a  small 
one  are  conspicuous  in  manufacture,  because,  as 
we  have  noticed,  it  has  special  facilities  for  con-  transport, 
centrating  a  great  deal  of  work  in  a  small  area,  "lining,  agn- 
But  there  is  a  strong  tendency  for  large  estab- 
lishments to  drive  out  small  ones  in  many  other  industries; 
in  particular  the  retail  trade  is  being  transformed,  and  the 
small    shopkeeper   is   losing  ground  daily.     Large   firms  are 
gaining  rapidly  in  the  Transport  Industries,  to  a  less  extent 
in  mining  and  very  little  if  at  all  in  agriculture  \ 

1  The  small  shopkeeper  has  special  facilities  for  bringing  his  goods  to  the 
door  of  his  customers ;  for  humouring  their  several  tastes ;  and  for  knowing 
enough  of  them  individually  to  be  able  safely  to  sell  on  credit.  But  the  im- 
portance of  these  advantages  is  diminisliing.  Meanwhile  cycles,  tramways 
&c.  are  making  it  easier  for  customers  to  visit  large  central  establishments 
for  the  purchase  of  those  goods  which  it  is  important  to  select  from  a  large 
and  varied  stock  and  one  which  is  constantly  renewed  with  changing  fashions; 
while  groceries  and  other  goods  of  which  the  small  shopkeeper  could  keep  a 
fair  supply  are  conveniently  obtained  by  a  written  order  from  the  price  list  of 
shops  or  stores  which  turn  over  their  stock  rapidly  and  keep  everything  fresh. 
See  Pnnciples  IV.  xi.  5,  6. 


CHAPTER  XII. 

INDUSTRIAL   ORGANIZATION,   CONTINUED.      BUSINESS 
MANAGEMENT. 

§  1.     Business  may  be  taken  to  include  all  provision  for 
the  wants  of  others  which  is  made  in  the  ex- 
management     pectation  of  payment  direct  or  indirect  from  those 
has  many         ^]^q  r^j.^  ^^  j^^  benefited.     It  is  thus  contrasted 

forms. 

with  the  provision  for  our  own  wants  which  each 

of  us  makes  for  himself,  and  with  those  kindly  services  which 
are  prompted  by  family  affection  and  the  desire  to  promote 
the  well-being  of  others. 

Even  in  modern  England  we  find  now  and  then  a  village 
Primitive        artisan  who  adheres  to  primitive  methods,  and 
methods.        makes  things  on  his  own  account  for  sale  to  his 
neighbours;  managing  his  own  business  and  undertaking  all 
its  risks \     But  such  cases  are  rare:  and  in  the  greater  part 
The  modern    o^  ^he  business  of  the  modern  world  the  task  of 
undertaker,     g^  directing  production  that  a  given  effort  may 
be  most  effective  in  supplying  human  wants  has  to  be  broken 
up  and  given  into  the  hands  of  a  specialised^  body  ^_  em- 
ployers, or  to  use  a  more  general  term,  of  businesajnen.    They 
"adventure"  or  "undertake"  its  risks;    they  bring  together 
the  capital  and  the  labour  required  for  the  work;  they  arrange 
or   "engineer"  its  general  plan,   and  superintend  its  minor 
details.     Looking  at  business  men  from  one  point  of  view  we 

1  The  most  striking  instances  of  an  adherence  to  old-fashioned  methods  of 
business  are  supplied  by  the  learned  professions ;  for  a  physician  or  a  solicitor 
manages  as  a  rule  his  own  business  and  does  all  its  work. 


BUSINESS  MANAGEMENT.  189 

may  regard  them  as  a  highly  skilled  industrial  grade,  from 
another  as  middlemen  intervening  between  the  manual  worker 
and  thp  nn^^smripr- 

There  are  some  kinds  of  business  men  Avho  undertake 
great  risks,  and  exercise  a  large  influence  over  subdivision  of 
tlie  welfare  both  of  the  producers  and  of  the  the  tasks  of 
consumers  of  the  wares  in  which  they  deal,  but  and'sup^ffh- 
who  are  not  to  any  considerable  extent  direct  em-  tendence^,...,. 
ployers  of  labour.  \Por  instance  some  Manchester  warehouse- 
men give  themselves  to  studying  the  movements  of  fashion, 
the  markets  for  raw  materials,  the  general  state  of  trade,  of 
the  money  market  and  of  politics,  and  all  other  causes  that 
are  likely  to  influence  the  prices  of  different  kinds  of  goods 
during  the  coming  season;  and  after  employing,  if  necessary, 
skilled  designers  to  carry  out  their  ideas,  they  give  out  to 
manufacturers  in  different  parts  of  the  world  contracts  for 
making  the  goods  on  which  they  have  determined  to  risk  their 
capitalX  And  in  the  clothing  trades  and  some  others,  we  see 
a  revival  of  what  has  been  called  the  "  house  House  indus- 
industry,"  which  prevailed  long  ago  in  the  textile  ^'■^^^• 
industries;  that  is,  the  system  in  which  large  undertakers 
give  out  work  to  be  done  in  cottages  and  very  small  work- 
shops to  persons  who  work  alone  or  with  the  aid  of  some 
members  of  their  family,  or  who  perhaps  employ  two  or  three 
hired  assistants.  In  remote  villages  in  almost  every  county 
of  England  agents  of  large  undertakers  come  round  to  give 
out  to  the  cottagers  partially  prepared  materials  for  goods  of 
all  sorts,  but  especially  clothes  such  as  shirts  and  collars  and 
gloves;  and  take  back  with  them  the  finished  goods.  It  is 
however  in  the  great  capital  cities  of  the  world,  and  i»  other 
large  towns,  especially  old  towns,  where  there  is  a  great  deal 
of  unskilled  and  unorganized  labour,  with  a  somewhat  low 
physique  and  morale,  that  the  system  is  most  fully  developed, 
especially  in  the  clothing  trades,  which  employ  two  hundred 
thousand  people  in  London  alone,  and  in  the  cheap  furniture 


1.90  BOOK  IV.  CH.  XII.  §§  1,  2. 

\ 

trades.  vThere  is  a  continual  contest  between  the  factory 
and  the  domestic  system,  now  one  gaining  gi-ound  and  now 
the  other  :\for  instance  just  at  present  the  growing  use  of 
sewing-machines  worked  by  steam  power  is  strengthening  the 
position  of  the  factories  in  the  boot  trade ;  while  factories  and 
workshops  are  getting  an  increased  hold  of  the  tailoring  trade. 
On  the  other  hand  the  hosiery  trade  is  being  tempted  back  to 
the  dwelling-house  by  recent  improvements  in  hand  knitting 
machines ;  and  it  is  possible  that  new  methods  of  distributing 
power  by  gas  and  petroleum  and  electric  engines  may  exercise 
a  like  influence  on  many  other  industries. 

Or  there  may  be  a  movement  towards  intermediate  plans, 
Sheffield  similar  to  those  which  are  largely  followed  in  the 

trades.  Sheffield  trades.    Many  cutlery  firms  for  instance 

put  out  grinding  and  other  parts  of  their  work,  at  piece-work 
prices,  to  working  men  who  rent  the  steam  power  which  they 
require,  either  from  the  firm  from  whom  they  take  their 
contract  or  from  someone  else :  these  workmen  sometimes 
employing  others  to  help  them,  sometimes  working  alone. 
N.  Thus  there  are  many  ways  in  which  those  who  undertake 
the  chief  risks  of  buying  and  selling  may  avoid  the  trouble  of 
housing  and  superintending  those  who  work  for  themX  They 
all  have  their  advantages ;  and  when  the  workers  are  men  of 
strong  character,  as  at  Sheffield,  the  results  are  on  the  whole 
not  unsatisfactory.  But  unfortunately  it  is  often  the  weakest 
class  of  workers,  those  with  the  least  resource  and  the  least 
self-control  who  drift  into  work  of  this  kind.  The  elasticity 
of  the  system  which  recommends  it  to  the  undertaker,  is 
really  the  means  of  enabling  him  to  exercise,  if  he  chooses,  an 
undesirable  pressure  on  those  who  do  his  work. 

For  while  the  success  of  a  factory  depends  in  a  great 
measure  on  its  having  a  set  of  operatives  who  adhere  steadily 
to  it,  the  capitalist  who  gives  out  work  to  be  done  at  home 
has  an  interest  in  retaining  a  great  many  persons  on  his 
books;  he  is  tempted  to  give  each  of  them  a  little  employ- 


BUSINESS  MANAGEMENT.  191 

ment  occasionally  and  play  them  off  one  against  another ;  and 
this  he  can  easily  do  because  they  do  not  know  one  another, 
and  cannot  arrange  concerted  action'. 

§  2.  MVhen  the  profits  of   business  are  under  discussion 
they  are  generally  connected  in  people's  minds 
with  the  employer  of  labour\^the  employer"  is  requireTin^the 
often   taken   as   a   term   practically  coextensive  ^^^^^  manu- 
with  the  receiver  of  business  profits.     But  the 
instances  which  we  have  just  considered  are  sufi&cient  to  illus- 
trate the  truth  that  the  superintendence  of  labour  is  but  one 
side,  and  often  not  the  most  important  side  of  business  work ; 
and  that  the  employer  who  undertakes  the  whole  risks  of  his 
business   really   performs    two   entirely   distinct   services   on 
behalf  of  the  community,  and  requires  a  twofold  ability. 

The  ideal  manufacturer,  for  instance,  if  he  makes  goods 
not  to  meet  special  orders  but  for  the  general  market,  must, 
in  his  first  xolej|^.^erchaj3Ji^and  organizer  of  production,  have 
a  thorough  knowledge  of  things^m.  'Eis"*bwn  trade.  He  must 
have  the  power  of  forecastrfi^'°C!ie  broad  movements  of  pro- 
duction and  consumption,  of  seeing  where  there  is  an  oppor- 
tunity for  supplying  a  new  commodity  that  will  meet  a  real 
want  or  improving  the  plan  of  producing  an  old  commodity. 
He  must  be  able  to  judge  cautiously  and  undertake  risks 
boldly;  and  he  mu&t  ai  course,  understand  the  materials  and 
machinery  used  in  his  trade. 

But  secondly  in  this  role  of  employer  he  must  be  a  natural 
leader  of  men.  He  must  have  a  power  of  first  choosing  his 
assistants  rightly  and  then  trusting  them  fully ;  of  interesting 
them  in  the  business  and  of  getting  them  to  trust  him,  so  as 
to  bring  out  whatever  enterprise  and  power  of  origination 
there  is  in  them ;  while  he  himself  exercises  a  general  control 
over  everything,  and  preserves  order  and  unity  in  the  main 
plan  of  the  business. 

1  The  subject  of  this  section  is  studied  a  good  deal  more  fully  in  Principles 
IV.  XII.  1—4. 


192  BOOK  lY.    CH.  XII.   §§  2 — 4. 

The  abilities  required  to  make  an  ideal  employer  are  so 
great  and  so  numerous  that  very  few  persons  can  exhibit  them 
all  in  a  very  high  degree.  Their  relative  importance  however 
varies  with  the  nature  of  the  industry  and  the  size  of  the 
business;  and  while  one  employer  excels  in  one  set  of  quali- 
ties, another  excels  in  another;  scarcely  any  two  owe  their 
success  to  exactly  the  same  combination  of  advantages.  Some 
men  make  their  way  by  the  use  of  none  but  noble  qualities, 
while  others  owe  their  prosperity  to  qualities  in  which  there 
is  very  little  that  is  really  admirable  except  sagacity  and 
strength  of  purpose. 

Such  then  being  the  general  nature  of  the  work  of  business 
management,  we  have  next  to  inquire  what  opportunities 
different  classes  of  people  have  of  developing  business  ability ; 
and,  when  they  have  obtained  that,  what  opportunities  they 
have  of  getting  command  over  the  capital  required  to  give  it 
scope. 

§  3.  The  son  of  a  man  already  established  in  business 
The  son  of  a  starts  with  SO  many  advantages  that  we  might 
business  man     expect  busincss  men  to  constitute  a  sort  of  caste; 

starts  with  ,..,.  ,.  ii./» 

many  advan-     dividing  out  amoiig  their  sons  the  chief  posts  of 
^^^^^'  command,    and    founding    hereditary    dynasties, 

which  ruled  certain  branches  of  trade  for  many  generations 
together.     But  it  is  not  so. 

A  man  who  gets  together  a  great  business  by  his  own 
efforts  has  probably  been  brought  up  by  parents  of  strong 
but  also  with  earnest  character,  and  educated  by  their  personal 
disadvantages,  influence  and  by  struggle  with  difficulties  in  early 
life.  But  his  children,  at  all  events  if  they  were  born  after 
he  became  rich,  and  in  any  case  his  grandchildren,  are  perhaps 
left  a  good  deal  to  the  care  of  domestic  servants  who  are  not 
of  the  same  strong  fibre  as  the  parents  by  whose  influence  he 
was  educated.  And  while  his  highest  ambition  was  probably 
success  in  business,  they  are  likely  to  be  at  least  equally 
anxious  for  social  distinction. 


BUSINESS   MANAGEMENT.  193 

For  a  time  indeed  all  may  go  well.  His  sons  find  a  firmly 
established  trade  connection,  and  what  is  perhaps  even  more 
important,  a  well-chosen  staff  of  subordinates  with  a  generous 
interest  in  the  business.  By  mere  assiduity  and  caution, 
availing  themselves  of  the  traditions  of  the  firm,  they  may 
hold  together  for  a  long  time.  But  when  a  full  generation 
has  passed,  when  the  old  traditions  are  no  longer  a  safe  guide, 
and  when  the  bonds  that  held  together  the  old  staff  have  been 
dissolved,  then  the  business  almost  invariably  falls  to  pieces 
unless  it  is  practically  handed  over  to  the  management  of  new 
men  who  have  meanwhile  risen  to  partnership  in  the  firm. 

But  in  most  cases  his  descendants  arrive  at  this  result  by 
a  shorter  route.  They  prefer  an  abundant  income  coming  to 
them  without  effort  on  their  part,  to  one  which  though  twice 
as  large  could  be  earned  only  by  incessant  toil  and  anxiety; 
and  they  sell  the  business  to  private  persons  or  a  joint-stock 
company ;  or  they  become  sleeping  partners  in  it ;  that  is 
sharing  in  its  risks  and  in  its  profits,  but  not  taking  part  in 
its  management :  in  either  case  the  active  control  over  their 
capital  falls  chiefly  into  the  hands  of  new  men. 

§  4.  The  oldest  and  simplest  plan  for  renovating  the 
energies  of  a  business  is  that  of  taking  into  Private  part- 
partnership  some  of  its  ablest  employes.  Or  nerships. 
again  two  or  more  people  may  combine  their  resources  for  a 
large  and  difficult  undertaking.  In  such  cases  there  is  often 
a  distinct  partition  of  the  work  of  management :  in  manu- 
factures for  instance  one  partner  will  sometimes  give  himself 
almost  exclusively  to  the  work  of  buying  raw  material  and 
selling  the  finished  product,  while  the  other  is  responsible  for 
the  management  of  the  factory  :  and  in  a  trading  establish- 

Iment  one  partner  will  control  the  wholesale  and  the  other  the 
retail  department.  In  these  and  other  ways  private  partner- 
ship is  capable  of  adapting  itself  to  a  great  variety  of  problems  : 
it  is  very  strong  and  very  elastic  ;  it  has  played  a  great  part  in 
the  past,  and  it  is  full  of  vitality  now. 
M.  13 


194  BOOK  IV.   CH.  XII.    §  5. 

§  5.  But  from  the  end  of  the  Middle  Ages  to  the  present 
time  there  has  been  in  some  classes  of  trades  a  movement 
Joint-stock  towards  the  substitution  of  public  joint-stock 
companies.  companies,  the  shares  of  which  can  be  sold  to 
anybody  in  the  open  market,  for  private  companies,  the  shares 
in  which  are  not  transferable  without  the  leave  of  all  con- 
cerned. The  effect  of  this  change  has  been  to  induce  people, 
many  of  whom  have  no  special  knowledge  of  trade,  to  give 
their  capital  into  the  hands  of  others  employed  by  them  :  and 
there  has  thus  arisen  a  new  distribution  of  the  various  parts 
of  the  work  of  business  management. 

The  ultimate  undertakers  of  the  risks  incurred  by  a  joint- 
stock  company  are  the  shareholders;  but  as  a  rule  they  do 
not  take  much  active  part  in  engineering  the  business  and 
controlling  its  general  policy ;  and  they  take  no  part  in  super- 
intending its  details.  After  the  business  has  once  got  out  of 
the  hands  of  its  original  promoters,  the  control  of  it  is  left 
chiefly  in  the  hands  of  Directors ;  who,  if  the  company  is  a 
very  large  one,  probably  own  but  a  very  small  proportion  of 
its  shares,  while  the  greater  part  of  them  have  not  much 
technical  knowledge  of  the  work  to  be  done.  They  are  not 
generally  expected  to  give  their  whole  time  to  it;  but  they 
are  supposed  to  bring  wide  general  knowledge  and  sound 
judgment  to  bear  on  the  broader  problems  of  its  policy ;  and 
at  the  same  time  to  make  sure  that  the  "  Managers"  of  the 
company  are  doing  their  work  thoroughly.  To  the  Managers 
and  their  assistants  is  left  a  great  part  of  the  work  of  engi- 
neeriiig  the  business,  and  the  whole  of  the  work  of  superin- 
tejiding  it :  but  they  are  not  required  to  bring  any  capital 
into  it ;  and  they  are  supposed  to  be  promofeH  from  the  lower 
ranks  to  the  higher  according  to  their  zeal  and  ability.  Since 
the  joint-stock  companies  in  the  United  Kingdom  have  an 
aggregate  income  of  .£100,000,000,  and  do  a  tenth  of  the  busi- 
ness of  all  kinds  that  is  done  in  the  country,  they  offer  very 
large  opportunities  to  men  with  natural  talents  for  business 


BUSINESS   MANAGEMENT.  195 

management,  who  have  not  inherited  any  material  capital,  or 
any  business  connection. 

Joint-stock  companies  have  great  elasticity  and  can  expand 
themselves  without  limit  when  the  work  to  which  they  have 
set  themselves  offers  a  wide  scope ;  and  they  are  gaining 
ground  in  nearly  all  directions.  But^  ^^^y  have  one  grpat 
source  of  weakness  in  the  abse^nce  of  any  adequate  knowledge 
of  the  husiiK'ss  on  the  p;irt  of  iho  shareholders  who  undertake 
its  chief  risks ;  though  a  few  of  the  larger  shareholders  often 
exert  themselves  to  find  out  what  is  going  on ;  and  are  thus 
able  to  exercise  an  effective  and  wise  control  over  the  general 
management  of  the  business  \  It  is  a  strong  proof  of  the 
marvellous  growth  in  recent  times  of  a  spirit  of  honesty  and 
uprightness  in  commercial  matters,  that  the  leading  officers  of 
great  public  companies  yield  as  little  as  they  do  to  the  vast 
temptations  to  fraud  which  lie  in  their  way.  If  they  showed 
an  eagerness  to  avail  themselves  of  opportunities  for  wrong- 
doinj?  at  all  approaching  that  of  which  we  read 

,  .    ,    ,  .  „  ,.  ..,.,.  The  system 

in  the  commercial  history  or  earlier  civilizations,  rendered 
their  wrong  uses  of  the  trust  imposed  in  them  J^orkabie  only 

c>  -"^  by  the  modern 

would  have  been  on  so  great  a  scale  as  to  prevent  growth  of  busi- 
the  development  of  this  (Icmocratic  form  of  busi-  "^^^ '"°''^  ^  y- 
ness.  There  is  every  reason  to  hope  that  the  progress  of  trade 
morality  will  continue,  and  that  it  will  be  aided  in  the  future 
as  it  has  been  in  the  past,  by  a  diminution  of  trade  secrecy 

1  It  is  true  that  the  head  of  a  large  private  firm  undertakes  the  chief  risks 
of  the  husiness,  while  he  intrusts  many  of  its  details  to  others ;  but  his  posi- 
tion is  secured  by  his  power  of  forming  a  direct  judgment  as  to  whether  his 
subordinates  serve  his  interests  faithfully  and  discreetly.  If  those  to  whom  he 
has  intrusted  the  buying  or  selling  of  goods  for  him  take  commissions  from 
those  with  whom  they  deal,  he  is  in  a  position  to  discover  and  punish  the 
fraud.  If  they  show  favouritism  and  promote  incompetent  relations  or 
friends  of  their  own,  or  if  they  themselves  become  idle  and  shirk  their  work, 
or  even  if  they  do  not  fulfil  the  promise  of  exceptional  ability  which  induced 
him  to  give  them  their  first  lift,  he  can  discover  what  is  going  wrong  and  set 
it  right.  But  in  all  these  matters  the  great  body  of  the  shareholders  of  a 
joint-stock  company  are,  save  in  a  few  exceptional  instances,  almost  powerless. 

13—2 


/ 


196  BOOK  IV.   CH.  XII.  §§  5,  6. 

and  by  increased  publicity  in  every  form ;  and  thus  collective 
and  democratic  forms  of  business  management  may  be  able  to 
extend  themselves  safely  in  many  directions  in  which  they 
have  hitherto  failed,  and  may  far  exceed  the  great  services 
they  already  render  in  opening  a  large  career  to  those  who 
have  no  advantages  of  birth. 

The  same  may  be  said  of  the  undertakings  of  Governments 
Government  imperial  and  local :  they  also  may  have  a  great 
undertakings,  future  before  them,  but  up  to  the  present  time 
the  tax-payer  who  undertakes  the  ultimate  risks  has  not  gene- 
rally succeeded  in  exercising  an  efficient  control  over  the 
businesses,  and  in  securing  officers  who  will  do  their  work 
with  as  much  energy  and  enterprise  as  is  shown  in  private 
establishments.  The  problem  of  Government  undertakings 
involves  however  many  complex  issues,  into  which  we  cannot 
inquire  here. 

§  6.  The  system  of  Co-operation  aims  at  avoiding  the 
Co-operative  evils  of  these  two  methods  of  business  manage- 
association.  ment.  In  that  ideal  form  of  Co-operati\  (>  Society, 
for  which  many  still  fondly  hope,  but  which  as  yet  has  been 
scantily  realized  in  practice,  a  part  or  the  whole  of  those 
shareholders  who  undertake  the  risks  of  the  business  are 
themselves  employed  by  it.  The  employes,  whether  they  con- 
tribute towards  the  material  capital  of  the  business  or  not, 
have  a  share  in  its  profits,  and  some  power  of  voting  at  the 
general  meetings  at  which  the  broad  lines  of  its  policy  are  laid 
down,  and  the  officers  appointed  who  are  to  carry  that  policy 
into  effect.  They  are  thus  the  employers  and  masters  of  their 
own  managers  and  foremen ;  they  have  fairly  good  means  of 
judging  whether  the  higher  work  of  engineering  the  business 
is  conducted  honestly  and  efficiently,  and  they  have  the  best 
possible  opportunities  for  detecting  any  laxity  or  incompetence 
in  its  detailed  administration.  And  lastly  they  render  unne- 
cessary some  of  the  minor  work  of  superintendence  that  is 
required  in   other  establishments;   for  their  own   pecuniary 


f 


BUSINESS   MANAGEMENT.  197 

interests  and  the  pride  they  take  in  the  success  of  their  own 
business  make  each  of  them  averse  to  any  shirking  of  work 
either  by  himself  or  by  his  fellow  workmen. 

But  unfortunately  the  system  has  very  great  difficulties  of 
its  own.     For  human  nature  being  what  it  is,  the 
employes  themselves  are  not  always  the  best  pos-  jn  the  task  of 
sible  masters  of  their  own  foremen  and  managers ;  business  man- 

,  .  If.  w    -  o         ;>    agement. 

jealousies  and  frettmgs  at  reproof  are  apt  to  act 
iijgesand.  that  has  got  mixed  with  the  oil  in  the  bearings  of  a 
great  and  complex  machinery.  And  in  particular,  since  the 
hardest  work  of  business  management  is  generally  that  which 
makes  the  least  outward  show,  those  who  work  with  their 
hands  are  apt  to  underrate  the  intensity  of  the  strain  involved 
in  the  highest  work  of  engineering  the  business,  and  to  grudge 
its  being  paid  for  at  anything  like  as  high  a  rate  as  it  could 
earn  elsewhere.  And Jn,.fact  the  managers  of  a  Co-operative 
Society  seldom  have  the  alertness,  the  inventiveness  and  the 
ready  versatility  of  the  ablest  of  those  men  who  have  been 
selected  by  the  struggle  for  survival,  and  have  been  trained 
by  the  perfectly  free  and  unfettered  responsibility  of  private 
business.  Partly  for  these  reasons  the  co-operative  system  has 
seldom  been  carried  out  in  its  entirety ;  and  its  partial  appli- 
cation has  so  far  attained  its  highest  success  in  the  task  of 
retailing  commodities  consumed  by  working  men — a  task  in 
wliich  it  has  special  advantages.  But  bond  Jide  co-operative 
)roduction  is  now  at  last  making  excellent  progress. 

Those  working-men  indeed    whose    tempers    are    strongly 
idividualistic,  and  whose  minds  are  concentrated  _^ 

"■"-•.^  ^  ^  It  may  out- 

dmost  wholly  on  their  own  affairs,  will  perhaps  grow  some  of 
Lways  find  their  quickest  and  most  congenial 
ith  to  material  success  by  commencing  business  as  small 
idependent  "undertakers,"  or  by  working  their  way  upwards 
a  private  firm  or  a  public  company.  But  co-operation  has 
special  charm  for  those  in  whose  tempers  the  social  element 
stronger,  and  who  desire  not  to  separate  themselves  from 


198  BOOK  IV.   CH.  XII.  §§  6,  7. 

their  old  comrades,  but  to  work  among  them  as  their  leaders. 
Its  aspirations  may  in  some  respects  be  higher  than  its  prac- 
tice;  but  it  undoubtedly  does  rest  in  a  great  measure  on 
ethical  motives.     Thejbrue  co-operator  combines  a  keen  lousi- 
ness intellect  with  a  spirit  full  of  an  earnest  Faith ;  and  some 
co-operative  societies  have  been  served  excellently  by  men  of 
great  genius  both  mentally  and  morally — men  who  for  the 
sake  of  the  Co-operg,tiv<^n  li^iHtiliL ^^^^'  ^^  ^^  them,  have  worked 
with  great  ability  and  energy,  and  with  perfect  uprightness, 
being  all  the  time  content  with  lower  pay  than  they  could 
have  got  as  business  managers  on  their  own  account  or  for  a 
private  firm.     Men  of  this  stamp  are  more  common  among  the 
officers  of   co-operative  societies  than  in  other  occupations ; 
j  and  though  they  are  not  very  common  even  there,  yet  it  may 
I  be  hoped  that  the  diffusion  of  a  better  knowledge  of  the  true 
I  principles  of  co-operation,  and  the  increase  of  general  educa- 
ition  are  every  day  fitting  a  larger  number  of  co-operators  for 
I  the  complex  problems  of  business  management. 

Meanwhile  many  partial  applications  of  the  co-operative 
principle  are  being  tried  under  various  conditions, 
^,,..,„««M*  each  of  which  presents  some  new  aspect  of  busi- 
ness management.  Thus  under  the  scheme  of  Profit-Sharing, 
a  private  firm  while  retaining  the  unfettered  management  of 
its  business,  pays  its  employes  the  full  market  rate  of  wages 
whether  by  Time  or  Piece-work,  and  agrees  in  addition  to 
divide  among  them  a  certain  share  of  any  profits  that  may  be 
made  above  a  certain  fixed  minimum ;  it  being  hoped  that  the 
firm  will  find  a  material  as  well  as  a  moral  reward  in  the 
diminution  of  friction,  in  the  increased  willingness  of  their 
employes  to  go  out  of  their  way  to  do  little  things  that  may 
be  of  great  benefit  comparatively  to  the  firm,  and  lastly  in 
attracting  to  themselves  workers  of  more  than  average  ability 
and  industry.  Under  the  scheme  of  Profit-and-Loss-Sharing, 
a  small  part  of  the  market  wages  of  the  employes  is  held  back 
as  a  contribution  towards  any  loss  that  may  be  shown  on  the 


\ 


BUSINESS   MANAGEMENT.  199 

year's  working ;  while  they  receive  a  more  than  proportionate 
share  of  the  profits  in  a  bad  year.  Another  par-  Partial  Co- 
tially  co-operative  scheme  is  that  of  some  Oldham  operation. 
Cotton  Mills  :  they  are  really  joint-stock  companies,  but  among 
their  shareholders  are  many  working  men  who  have  a  special 
knowledge  of  the  trade,  though  not  many  of  their  own  employes. 
And  another  is  that  of  the  Productive  establishments,  owned 
by  the  main  body  of  Co-operative  Stores,  through  their  agents, 
the  Co-operative  Wholesale  Societies.  Here  the  Scotchmen 
are  in  advance.  In  the  English  Society  the  workers  as  such 
have  as  yet  no  direct  share  either  in  the  management  or  in 
the  profits  of  the  works. 

But  we  must  not  pursue  this  inquiry  further  now  :  enough 
has  been  said  to  show  that  the  world  is  only  Hopes  for  the 
just  beginning  to  be  ready  for  the  higher  work  future. 
of  the  co-operative  movement  in  its  many  different  forms. 
It  may  therefore  be  reasonably  expected  to  attain  a  much 
larger  success  in  the  future  than  in  the  past;  and  to  offer 
excellent  opportunities  for  working-men  to  practise  themselves 
in  the  work  of  business  management,  to  grow  into  the  trust 
and  confidence  of  others,  and  gradually  rise  to  posts  in  which 
their  business  abilities  will  find  scope. 

§  7.  In  speaking  of  the  difficulty  that  a  working-man  has 
in  rising  to  a  post  in  which  he  can  turn  his  busi-  ^^e  rise  of  the 
ness  ability  to  full  account,  the  chief  stress  is  working-man 

•^  i>  •      1      1  1  •      hindered  by  his 

commonly  laid  upon  his  want  of  capital :  but  this  want  of  capi  - 
is  not  always  his  chief  difficulty.  For  instance  *^^' 
the  co-operative  distributive  societies  have  accumulated  a  vast 
capital,  on  which  they  find  it  difficult  to  get  a  good  rate  of 
interest ;  and  which  they  would  be  rejoiced  to  lend  to  any  set 
of  working-men  who  could  show  that  they  had  the  capacity 
for  dealing  with  difficult  business  problems.  Co-operators  who 
have  firstly  a  high  order  of  business  ability  and  probity,  and 
secondly  the  "personal  capital"  of  a  great  reputation  among 
their  fellows  for  these  qualities,   will  have   no  difficulty  in 


200  BOOK  IV.   CH.  XII.   §  7. 

getting  command  of  enough  material  capital  for  a  considerable 
undertaking :  the  real  difficulty  is  to  convince  a  sufficient 
number  of  those  around  them  that  they  have  these  rare  quali- 
ties. And  the  case  is  not  very  different  when  an  individual 
endeavours  to  obtain  from  the  ordinary  sources  the  loan  of 
the  capital  required  to  start  him  in  business. 

It  is  true  that  in  almost  every  business  there  is  a  constant 
increase  in  the  amount  of  capital  required  to  make  a  fair 
start ;  but  there  is  a  much  more  rapid  increase  in  the  amount 
of  capital  which  is  owned  by  people  who  do  not  want  to  use 
it  themselves,  and  are  so  eager  to  lend  it  out  that  they  will 
accept  a  constantly  lower  and  lower  rate  of  interest  for  it. 
Much  of  this  capital  passes  into  the  hands  of  bankers  and 
others,  people  of  keen  intellect  and  restless  energy  ;  people 
who  have  no  class  prejudices  and  care  nothing  for  social 
distinctions;  and  who  would  promptly  lend  it  to  anyone  of 
whose  business  ability  and  honesty  they  were  convinced.  To 
say  nothing  of  the  credit  that  can  be  got  in  many  businesses 
from  those  who  supply  the  requisite  raw  material  or  stock  in 
trade,  the  opportunities  for  direct  borrowing  are  now  so  great 
that  an  increase  in  the  amount  of  capital  required  for  a  start 
in  business  is  no  very  serious  obstacle  in  the  way  of  a  person 
who  has  once  got  over  the  initial  difficulty  of  earning  a  repu- 
tation for  being  likely  to  use  it  well. 

But  perhaps  a  greater,  though  not  so  conspicuous,  hind- 
rance to  the  rise  of  the  working  man  is  the 
by  the  growing  growing  Complexity  of  business.  The  head  of  a 
complexity   of  business  has  now  to  think  of  many  things  about 

business.  jo 

which  he  never  used  to  trouble  himself  in  earlier 
days ;  and  these  are  just  the  kind  of  difficulties  for  which  the 
training  of  the  workshop  affords  the  least  preparation.  Against 
this  must  be  set  the  rapid  improvement  of  the  education  of 
the  working  man  not  only  at  school,  but  what  is  more  im- 
portant, in  after  life  by  newspapers,  and  from  the  work  of 
CO  operative  societies  and  trades  unions,  and  in  other  ways. 


BUSINESS  MANAGEMENT.  201 

About  three-fourths  of  the  whole  population  of  England 
belong  to  the  wage-earning  classes ;  and  at  all  events  when 
they  are  well  fed,  properly  housed  and  educated,  they  have 
their  fair  share  of  that  nervous  strength  which  is  the  raw 
material  of  business  ability.  Without  going  out  of  their  way 
they  are  all  consciously  or  unconsciously  competitors  for  posts 
of  business  command.  The  ordinary  workman,  if  he  shows 
ability,  generally  becomes  a  foreman,  from  that  he  may  rise 
to  be  a  manager,  and  to  be  taken  into  partnership  with  his 
employer.  Or  having  saved  a  little  of  his  own  he  may  start 
one  of  those  small  shops  which  still  can  hold  their  own  in  a 
working  man's  quarter,  stock  it  chiefly  on  credit,  and  let  his 
wife  attend  to  it  by  day,  while  he  gives  his  evenings  to  it.  In 
these  or  in  other  ways  he  may  increase  his  capital  till  he  can 
start  a  small  workshop,  or  factory.  Once  having  made  a  good 
beginning,  he  will  find  the  banks  eager  to  give  him  generous 
credit.  He  must  have  time;  and  since  he  is  not  likely  to 
start  in  business  till  after  middle  age  he  must  have  a  long  as 
well  as  a  strong  life;  but  if  he  has  this  and  has  also  "patience, 
genius  and  good  fortune"  he  is  pretty  sure  to  command  a  large 
capital  before  he  dies.  In  a  factory  those  who  work  with 
their  hands,  have  better  opportunities  of  rising  to  posts  of 
command  than  the  book-keepers  and  many  others  to  whom 
social  tradition  has  assigned  a  higher  place.  But  in  trading 
concerns  it  is  otherwise ;  what  manual  work  is  done  in  them 
||H  has  as  a  rule  no  educating  character,  while  the  experience  of 
^H  the  office  is  better  adapted  for  preparing  a  man  to  manage  a 
^^B  commercial  than  a  manufacturing  business. 
^H  There  is  then  on  the  whole  a  broad  movement  from  below 
^H  upwards.     Perhaps  not  so  many  as  formerly  rise    .       .^  , 


that  of  employers  :  but  there  are  more  who  get  ^"^  *" 
on  sufficiently  far  to  give  their  sons  a  good  chance  of  attaining 
to  the  highest  posts.  The  complete  rise  is  not  so  very  often 
accomplished  in  one  generation;  it  is  more  often  spread  over 


I 


11 


202  BOOK  IV.  CH.  XII.  §§  7,  8. 

two;  but  the  total  volume  of  the  movement  upwards  is  pro- 
bably greater  than  it  has  ever  been.  And  it  may  be  remarked 
in  passing  that  it  is  better  for  society  as  a  whole  that  the 
rise  should  be  distributed  over  two  generations.  The  work- 
men who  at  the  beginning  of  this  century  rose  in  such  large 
numbers  to  become  employers  were  seldom  fit  for  posts  of 
command  :  they  were  too  often  harsh  and  tyrannical ;  they 
lost  their  self-control,  and  were  neither  truly  noble  nor  truly 
happy ;  while  their  children  were  often  haughty,  extravagant, 
and  self-indulgent,  squandering  their  wealth  on  low  and  vulgar 
amusements,  having  the  worst  faults  of  the  older  aristocracy 
without  their  virtues.  The  foreman  or  superintendent  who 
has  still  to  obey  as  well  as  to  command,  but  who  is  rising  and 
sees  his  children  likely  to  rise  further,  is  in  some  ways  more 
to  be  envied  than  the  small  master.  His  success  is  less  con- 
spicuous, but  his  work  is  often  higher  and  more  important  for 
the  world,  while  his  character  is  more  gentle  and  refined  and 
not  less  strong.  His  children  are  well-trained ;  and  if  they 
get  wealth,  they  are  likely  to  make  a  fairly  good  use  of  it. 
§  8.  When  a  man  of  great  ability  is  once  at  the  head  of 
^    ,  an  independent  business,  whatever  be  the  route 

Adjustment  of  ^  ^  '  ^  _ 

capital  to  busi-  by  which  he  has  got  there,  he  will  with  moderate 
ness  a  1 1  y.  gQQ(j  fortune,  soon  be  able  to  show  such  evidence 
of  his  power  of  turning  capital  to  good  account  as  to  enable 
him  to  borrow  in  one  way  or  another  almost  any  amount  that 
he  may  need ;  and  on  the  other  hand  a  man  with  small  ability 
in  command  of  a  large  capital,  speedily  loses  it :  he  may 
perhaps  be  one  who  could  and  would  have  managed  a  small 
business  with  credit,  and  left  it  stronger  than  he  had  found 
it :  but  if  he  has  not  the  genius  for  dealing  with  great 
problems,  the  larger  it  is  the  more  speedily  will  he  break 
it  up. 

These  two  sets  of  forces,  the  one  increasing  the  capital 
at  the  command  of  able  men,  and  the  other  destroying  the 
capital  that  is  in  the  hands  of  weaker  men,  bring  about  the 


BUSINESS  MANAGEMENT.  203 

result  that  there  is  a  far  more  close  correspondence  between 
the  ability  of  business  men  and  the  size  of  the  businesses 
which  they  own  than  at  first  sight  would  appear  probable.V 
And  when  we  consider  all  the  many  routes,  by  which  a  man 
of  great  natural  business  ability  can  work  his  way  up  high  in 
some  private  firm  or  public  company,  we  may  conclude  that 
wherever  there  is  work  on  a  large  scale  to  be  done  in  such  a 
country  as  England,  the  ability  and  the  capital  required  for  it 
are  pretty  sure  to  be  speedily  forthcoming. 

Further,  just  as  industrial  skill  and  ability  are  getting 
every  day  to  depend  more  and  more  on  the  broad  faculties  of 
judgment,  promptness,  resource,  carefulness  and  steadfastness 
of  purpose — faculties  which  are  not  specialized  to  any  one 
trade,  but  which  are  more  or  less  useful  in  all — so  it  is  with 
regard  to  business  ability.  In  fact  business  ability  consists 
more  of  these  general  and  non-specialized  faculties  than  do 
industrial  skill  and  ability  in  the  lower  grades :  and  the  higher 
the  grade  of  business  ability  the  more  various  are  its  applica- 
tions. 

Since  then  business  ability  in  command  of  capital  moves 
with  great  ease  horizontally  from  a  trade  which  supply  price  of 
is  overcrowded  to  one  which  offers  ffood  openings  business    abi- 

*=•  ^  °      lity     in     com- 

for  it :  and  since  it  moves  with  great  ease  verti-  mand  of  capi- 
cally,  the  abler  men  rising  to  the  higher  posts  in  *^'' 
their  own  trade,  we  see,  even  at  this  early  stage  of  our  inquiry, 
some  good  reasons  for  believing  that  in  modern  England  the 
[supply  of  business  ability  in  command  of  capital  accommodates 
itself,  as  a  general  rule,  to  the  demand  for  it ;  and  thus  has  a 
fairly  defined  supply  price. 


\ 

Finally,  we  may  regard  this^supply  price  of  business  aj^ili^  I 

('oiniiiaiid  of  capit.il  as  composed  of  three  elements.     The  r 


jg,^  ('oiniiiaiid  of  capit;il  as  composed 

first  is  the  supply  price  of  capital ;  the  second  is  the  supply 
price  of  business  ability  and  energy;  and  the  third  is  the 
supply  price  of  that  organization  by  which  the  appropriate 
business  ability  and  the  requisite  capital  are  brought  together. 


204!  BOOK  IV.   CH.  XII.   §  8. 

We  have   called  the  price  of   the   first    of   these    three  ele- 
ments "Interest;"  we  may  call  the  price  of  the 

Net  and  Gross  ^  . 

Earnings      of  second  taken  by  itself  "Net  Earnings  of  Manage- 
anagemen  .    j^^^j^^^"  g^j^j  ^Yiat  of  the  second  and  third  taken 
together  "  Gross  Earnings  of  Management ^" 

1  The  last  five  Sections  of  this  chapter  differ  hut  little  from  Principles 
IV.  XII.  5—12. 


CHAPTER  XIII. 

CONCLUSION.      THE   LAW   OF   INCREASING    IN    RELATION   TO 
THAT   OF   DIMINISHING   RETURN. 

§  1.  xAt  the  beginning  of  this  Book  we  saw  how  the  extra 
Return  of  raw  produce  which  Nature  affords  to 

,  T       ,•  o  -,1  111  Relation  of  the 

an  increased  apphcation  oi   capital   and  labour,  later  Chapters 
other  thinsrs  beinsr  equal,  tends  in  the  lonff  run  of  this  Book  to 

'^  0^5  ^5  the  earlier. 

to  diminish. ^  In  the  remainder  of  the  Book  and 
especially  in  the  last  four  chapters  we  have  looked  at  the  other 
side  of  the  shield,  and  seen  how  man's  power  of  productive 
work  increases  with  the  volume  of  the  work  that  he  does. 
Considering  first  the  causes  that  govern  the  supply  of  labour,  \ 
we  saw  how  every  increase  in  the  physical,  mental,  and 
moral  vigour  of  a  people  makes  them  more  likely,  other 
things  being  equal,  to  rear  to  adult  age  a  large  number  of 
vigorous  children.  Turning  next  to  the  Growth  of  "Wealth  we 
observed  how  every  increase  of  wealth  tends  in  many  ways  to 
make  a  greater  increase  more  easy  than  before.  And  lastly 
we  saw  how  every  increase  of  wealth  and  every  increase  in  the 
numbers  and  intelligence  of  the  people  increased  the  facilities 
for  a  highly  developed  Industrial  Organization,  which  in  its 
turn  adds  much  to  the  coUectiye  efficiency  of  capital  and 
l^t  labour. 

^^H  Looking  more  closely  at  the  ecor^on^s  arising  from  an 
^^H  increase  in  the  scale  of  production  of  any  kind  of  goods,  we 
^^H  found  that  they  fell  into  two  classes — those  dependent  on  the 
^H^  general  development  of  the  industry  and  those  dependent  on 
^^B  the  resources  of  the  individual  houses  of  business  engaged  in 
^^B  it  and  the  efficiency  of  their  management ;  that  is,  into  external 
^^B  and  internal  economies.  " 

■ 


/i 


206  BOOK  IV.  CH.  XIII.  §§1,2. 

We  saw  how  these  latter  economies  are  liable  to  constant 
fluctuations  so  far  as  any  particular  house  is  concerned,  and 
therefore  when  we  speak  of  the  normal  cost  of  production  of 
any  class  of  goods  we  must  suppose  them  to  be  produced  by  a 
firm  that  is  fairly  representative  of  the  whole  body  of  pro- 
A  Representa-  duccrs  of  thoso  goods.  Our  Representative  firm 
tive  firm.  must  be  One  which  has  had  a  fairly  long  life,  and 

fair  success,  which  is  managed  with  normal  ability,  and  which 
has  normal  access  to  the  economies.  External  and  Internal, 
which  belong  to  that  aggregate  volume  of  production'. 

The  general  argument  of  the  present  Book  shows  that  an 
increase  in  the  aggregate  volume  of  production  of  anything 
will  generally  increase  the  size,  and  therefore  the  Internal 
economies  possessed  by  this  Representative  firm ;  and  that  it 
will  always  increase  the  External  economies  to  which  such  a 
firm  has  access ;,  and  that  thereby  the  firm  will  be  enabled  to 
manufacture  at  a  less  proportionate  cost  of  labour  and  sacri- 
fice than  before. 
Mr  In  other  words  we  say  broadly  that  while  the  part  which 
»    Th     L  f  ^^^^^®  plays  in  production  conforms  to  the  Law 

I     Increasing  Re-  of  Diminishing  Return,  the  part  which  man  plays 
\   *"'^"'  conforms  to  the  Law  op   Increasing   Return, 

which  may  be  stated  thus  :^*^n  increase  of^^apital  and  labour 
leads  generally  to  an  improveCTH)rganization1^nd  therefore  in 
those  industries  which  are  not  engaged  in  raising  raw  produce 
it  generally  gives  a  return  increased  more  than  in  proportion ; 
and  further  this  improved  organization  tends  to  diminish  or 
even  override  any  increased  resistance  which  Nature  may  offer 
to  raising  increased  amounts  of  raw  produce.     If  the  actions 
of  the  Laws  of  Increasing  and  Diminishing  Return  are  ba- 
fand    of   Con-  lanced  we  have  the  Law  of  Constant  Return 
I  stant  Return.    ^^^  ^^  increased  produce  is  obtained  by  labour 
I  and  sacrifice  increased  just  in  proportion. 

1  This  point  is  considered  at  some  length  in  Principles  IV.  xm.  1. 


I 


INCREASING   AND   DIMINISHING   RETUBNS.  207 

For  the  two  tendencies  towards  Increasing  and  Diminish- 
ing Return  press  constantly  against  one  another.  In  the 
production  of  wheat  and  wool,  for  instance,  the  latter  ten- 
dency has  almost  exclusive  sway  in  an  old  country,  which 
cannot  import  freely^.  In  turning  the  wheat  into  flour,  or  the 
wool  into  blankets,  an  increase  in  the  aggregate  volume  of 
production  brings  some  new  economies,  but  not  many ;  for  the 
trades  of  grinding  wheat  and  making  blankets  are  already  on 
so  great  a  scale  that  any  new  economies  that  they  may  attain 
are  more  likely  to  be  the  result  of  new  inventions  than  of 
improved  organization.  In  a  country  however  in  which  the 
blanket  trade  is  but  slightly  developed,  these  latter  may  be 
important ;  and  then  it  may  happen  that  an  increase  in  the 
aggregate  production  of  blankets  diminishes  the  proportionate 
difficulty  of  manufacturing  by  just  as  much  as  it  increases  that 
of  raising  the  raw  material.  In  that  case  the  actions  of  the 
Laws  of  Diminishing  and  of  Increasing  Return  would  just 
neutralize  one  another;  and  blankets  would  conform  to  the 
Law  of  Constant  Return.  But  in  most  of  the  more  delicate 
branches  of  manufacturing,  where  the  cost  of  raw  material 
counts  for  little,  and  in  most  of  the  modern  transport  indus- 
tries the  Law  of  Increasing  Return  acts  almost  unopposed. 

§  2.  Our  discussion  of  the  character  and  organization  of 
industry  taken  as  a  whole  tends  to  show  that  an  ^  ^. 

"^  ,  ^  Subject  to  cer- 

increase  in  the  volume  of  labour  causes  in  general,  tain  condi- 
other  things  being  equal,  a  more  than  propor-  **°"^' 
tionate  increase  in  the  total  efficiency  of  labour.  But  we  must 
not  forget  that  other  things  may  not  be  equal.  The  increase 
of  numbers  may  be  accompanied  by  more  or  less  general 
adoption  of  unhealthy  and  enervating  habits  of  life  in  over- 
crowded towns.  Or  it  may  have  started  badly,  outrunning 
the  material  resources  of  the  people,  causing  them  with  im- 
perfect appliances  to  make  excessive  demands  on  the  soil; 

1  As  regards  the  struggle  of  tlie  two  tendencies  in  agriculture,  compare 
above  Book  iv.  Cli.  in.  §  6. 


208  BOOK  IV.   CH.   XIII.   §  2. 

and  so  to  call  forth  the  stern  action  of  the  Law  of  Diminishing 

o 

Return  as  regards  raw  produce,  without  having  the  power  of 
minimizing  its  effects :  having  thus  begun  with  poverty,  an 
increase  in  numbers  may  go  on  to  its  too  frequent  conse- 
quences in  that  weakness  of  character  which  unj&ts  a  people 
for  developing  a  highly  organized  industry. 

All  this  and  more  may  be  granted,  and  yet  it  remains  true 
that  the  collective  efficiency  of  a  people  with  a 

an  increase  of        .  »'»"»- '*'4T'*t? , 

numbers  may  given  average  ot   individual  strength  and  skill 

plniedhya  ^^^  increase  more  than  in  proportion  to  their 

more  than  numbers.     If  they  can  for  a  time  escape  from 

fncrease°or  ^  ^^^  pressure  of  the  Law  of  Diminishing  Return 

collective  effi-  ^y  importing  food  and  other  raw  produce  :  if  their 

ciency.  i  i  i     •  i  . 

wealth,  not  being  consumed  m  great  wars,  increases 
at  least  as  fast  as  their  numbers;  and  if  they  avoid  habits 
of  life  that  would  enfeeble  them;  then  every  increase  in 
their  numbers  is  likely  /or  the  time  to  be  accompanied  by  a 
more  than  proportionate  increase  in  their  power  of  obtain- 
ing material  goods.  For  it  enables  them  to  secure  the  many 
various  economies  of  specialized  skill  and  specialized  machi- 
nery, of  localized  industries  and  production  on  a  large  scale  : 
it  enables  them  to  have  increased  facilities  of  communication 
of  all  kinds ;  while  the  very  closeness  of  their  neighbourhood 
diminishes  the  expense  of  time  and  effort  involved  in  every 
sort  of  traffic  between  them,  and  gives  them  new  opportunities 
of  getting  social  enjoyments  and  the  comforts  and  luxuries  of 
culture  in  every  form.  It  is  true  that  against  this  must  be 
set  the  growing  difficulty  of  finding  solitude  and  quiet  and 
even  fresh  air.  This  deduction  is  a  weighty  one;  but  there 
still  remains  a  balance  of  good. 

Taking  account  of  the  fact  that  an  increasing  density  of 
population  generally  brings  with  it  access  to  new  social  enjoy- 
ments we  may  give  a  rather  broader  scope  to  this  statement 
and  say  : — An  increase  of  population  accompanied  by  an  equal 
increase  in  the  material  sources  of   enjoyment  and  aids   to 


INCREASING   AND   DIMINISHING   RETURNS.  209 

production  is  likely  to  lead  to  a  more  than  proportionate  in- 
crease in  the  aggregate  income  of  enjoyment  of  all  kinds, 
provided  firstly,  an  adequate  supply  of  raw  produce  can  be 
obtained  without  great  difficulty,  and  secondly  there  is  no 
such  overcrowding  as  causes  physical  and  moral  vigour  to  be 
impaired  by  the  want  of  fresh  air  and  light  and  of  healthy 
and  joyous  recreation  for  the  young. 

The  accumulated  wealth  of  civiliised  countries  is  at  present 
growing  faster  than  the  population :  and  though 
it  may  be  true  that  the  wealth  per  head  would  ^  g^ro^wth  o  ° 
increase  somewhat  faster  if  the  population  did  numbers  must 

be  distinguish- 
not  increase  quite  so  fast;  yet  as  a  matter  of  fact  ed  from  those 

an  increase  of  population  is  likely  to  continue  to  ^eaifh"^*^  °^ 
be  accompanied  by  a  more  than  proportionate 
increase  of  the  material  aids  to  production  :  and  in  England 
at  the  ijresent  time,  with  easy  access  to  abundant  foreign  sup- 
plies of  raw  material,  an  increase  of  population  is  accompanied 
by  a  more  than  proportionate  increase  of  the  means  of  satisfying 
human  wants  other  than  the  need  for  light,  fresh  air,  <fec.  It 
must  however  be  remembered  that  England's  foreign  supplies 
of  raw  produce  may  at  any  time  be  checked  by  changes  in  the 
trade  regulations  of  other  countries,  and  may  be  almost  cut 
off  by  a  great  war ;  while  the  naval  and  military  expenditure 
which  would  be  necessary  to  make  the  country  fairly  secure 
against  this  last  risk,  would  appreciably  diminish  the  benefits 
that  she  derives  from  the  action  of  the  Law  of  Increasing 

IIleturn\ 
1  The  Englishman  Mill  bursts  into  unwonted  enthusiasm  when  speaking  of 
the  pleasures  of  wandering  alone  in  beautiful  scenery :  and  many  American 
writers  give  fervid  descriptions  of  the  growing  richness  of  human  life  as  the 
backwoodsman  finds  neighbours  settling  around  hun,  as  the  backwoods  settle- 
ment developes  into  a  village,  the  village  into  a  town,  and  the  town  into  a 


M,  14 


BOOK   V. 
THE  EQUILIBRIUM  OF  DEMAND  AND  SUPPLY. 

CHAPTER   I. 

ON   MARKETS. 

§  1.     In  spite  of  a  great  variety  in  detail  nearly  all  the 

chief  problems  of  economics   have  a    kernel  of 

mic  problems     the  Same  kind.     This  kernel  is  an  inquiry  as  to 

have  a  com-     ^Y\e  balancing  of  two  opposed  classes  of  motives, 

mon  kernel.  ''  ^^  ' 

the  one  consisting  of  desires  to  acquire  certain 
new  Goods,  and  thus  satisfy  Wants ;  while  the  other  consists 
of  desires  to  avoid  certain  Efforts  or  retain  certain  immediate 
enjoyments  or  other  Goods,  the  command  over  which  has 
already  been  acquired ;  in  other  words  it  is.  an  inquiry  into 
the  balancing  of  the  forces  of  Demand  and  Supply,  these 
terms  being  used  in  their  broadest  sense.  'The  purpose  of  the 
present  book  is  to  examine  the  general  conditions  of  the 
equilibjiujOLal^deniand  and  supply  :  illustrations  will  be  taken 
now  from  one  class  of  economic  problems  and  now  from 
another,  but  the  main  course  of  the  reasoning  will  be  kept 
free  from  assumptions  which  specially  belong  to  any  particular 
class. 

§  2.  When  demand  and  supply  are  spoken  of  in  relation 
Definition  of  a  to  one  another,  it  is  of  course  necessary  that  the 
Market.  markets  to  which  they  refer  should  be  the  same. 

As  Cournot  says  "  Economists  understand  by  the  term  Mar- 
Kf:T,  not  any  particular  market  place  in  which  things  are 
bought  and  sold,  but  the  whole  of  any  i-egion  in  which  buyers 


ON   MARKETS.  211 

and  sellers  are  in  such  free  intercourse  with  one  another  that 
the  prices  of  the  same  goods  tend  to  equality  easily  and 
quickly."  Or  again  as  Jevons  says  : — "  Originally  a  market 
was  a  public  place  in  a  town  where  provisions  and  other 
objects  were  exposed  for  sale ;  but  the  word  has  been  general- 
ized, so  as  to  mean  any  body  of  persons  who  are  in  intimate 
business  relations  and  carry  on  extensive  transactions  in  any 
commodity.  A  great  city  may  contain  as  many  markets  as 
there  are  important  branches  of  trade,  and  these  markets  may 
or  may  not  be  localized.  The  central  point  of  a  market  is  the 
public  exchange,  mart  or  auction  rooms,  where  the  traders 
agree  to  meet  and  transact  business.  In  London  the  Stock 
Market,  the  Corn  Market,  the  Coal  Market,  the  Sugar  Market, 
and  many  others  are  distinctly  localized;  in  Manchester  the 
Cotton  Market,  the  Cotton  Waste  Market,  and  others.  But 
this  distinction  of  locality  is  not  necessary.  The  traders  may 
be  spread  over  a  whole  town,  or  region  of  country,  and  yet 
make  a  market,  if  they  are,  by  means  of  fairs,  meetings,  pub- 
lished price  lists,  the  post  office  or  otherwise,  in  close  commu- 
nication with  each  other." 

Thus  the  more  nearly  perfect  a  market  is,  the  stronger  is 
the  tendency  for  the  same  price  to  be  paid  for  the  same  thing 
at  the  same  time  in  all  parts  of  the  market :  but  of  course  if 
the  market  is  large,  allowance  must  be  made  for  the  expense 
of  delivering  the  goods  to  different  purchasers ;  each  of  whom 
must  be  supposed  to  pay  in  addition  to  the  market  price  a 

I  special  charge  on  account  of  delivery'. 
§  3.     In  applying  economic  reasonings  in  practice  it  is 
often  difficult  to  ascertain  how  far  the  movements  Boundaries  of 
of  supply  and  demand  in  any  one  place  are  infiu-  ^  market, 
enced  by  those  in  another.     It  is  clear  that  the  general  tend- 
ency of  the  telegraph,  the  printing  press  and  steam  traffic  is 


1  Thus  it  is  common  to  see  the  prices  of  bulky  goods  quoted  as  delivered 
"free  on  board"  (f.o.b.)  any  vessel  in  a  certain  port,  each  purchaser  having 
to  make  his  own  reckoning  for  bringing  the  goods  home. 

14—2 


212  BOOK  V.   CH.  1.   §§  8,  4. 

to  extend  the  area  over  which  such  influences  act  and  to 
increase  their  force.  The  whole  Western  World  may,  in  a 
sense,  be  regarded  as  one  market  for  many  kinds  of  stock 
exchange  securities,  for  the  more  valuable  metals,  and  to  a 
less  extent  for  wool  and  cotton  and  even  wheat ;  proper  allow- 
ance being  made  for  expenses  of  transport,  in  which  may  be 
included  taxes  levied  by  any  customs  houses  through  which 
the  goods  have  to  pass.  For  in  all  these  cases  the  expenses 
of  transport,  including  customs  duties,  are  not  sufficient  to 
prevent  buyers  from  all  parts  of  the  Western  World  from 
competing  with  one  another  for  the  same  supplies. 

There  are  many  special  causes  which  may  widen  or  narrow 

the  market  of  any  particular  commodity :  but 
ditions  of  a  nearly  all  those  things  for  which  there  is  a  very 
for^^  a  "th[n^*  wide  market  are  in  universal  demand,  and  capable 
Suitability  for  of  being  easily  and  exactly  described.     Thus  for 

instance  cotton,  wheat,  and  iron  satisfy  wants 
that  are  urgent  and  nearly  universal.  They  can  be  easily 
described,  so  that  they  can  be  bought  and  sold  by  persons  at  a 
distance  from  one  another  and  at  a  distance  also  from  the 
commodities.  If  necessary,  samples  can  be  taken  of  them 
which  are  truly  representative:  and  they  can  even  be  "graded," 
as  is  the  actual  practice  with  regard  to  grain  in  America,  by 
an  independent  authority ;  so  that  the  purchaser  may  be  secure 
that  what  he  buys  will  come  up  to  a  given  standard,  though 
he  has  never  seen  a  sample  of  the  goods  which  he  is  buying, 
and  perhaps  would  not  be  able  himself  to  form  an  opinion  on 
it  if  he  did. 

Commodities  for  which  there  is  a  very  wide  market  must 

also  be  such  as  will  bear  a  long  carriage :  they 
^'  "  must  be  somewhat  durable,  and  their  value  must 
be  considerable  in  proportion  to  their  bulk.  A  thing  which 
is  so  bulky  that  its  price  is  necessarily  raised  very  much  when 
it  is  sold  far  away  from  the  place  in  which  it  is  produced, 
must  as  a  rule  have  a  narrow  market.    The  market  for  common 


ON   MARKETS.  213 

bricks  for  instance  is  practically  confined  to  the  near  neigh- 
bourhood of  the  kilns  in  which  they  are  made :  they  can 
scarcely  ever  bear  a  long  carriage  by  land  to  a  district  which 
has  any  kilns  of  its  own.  But  bricks  of  certain  exceptional 
kinds  have  a  market  extending  over  a  great  part  of  England. 

§  4.  Let  us  then  consider  more  closely  the  markets  for 
things  which  satisfy  in  an  exceptional  way  these  conditions 
of  being  in  general  demand,  cognizable  and  portable.  They 
are,  as  we  have  said,  stock  exchange  securities  and  the  more 
valuable  metals. 

Any  one  share  or  bond  of  a  public  company,  or  any  bond 
of  a  government  is  of  exactly  the  same  value  as  ^ 
any  other  of  the  same  issue ;  and  it  can  make  change  securi- 
no  difference  to  any  purchaser  which  of  the  two  *^.^* 
he  buys.  Some  securities,  principally  those  of  comparatively 
small  mining,  shipping,  and  other  companies,  require  .local 
knowledge,  and  are  not  very  easily  dealt  in  except  on  the 
stock  exchanges  of  provincial  towns  in  their  immediate  neigh- 
bourhood. But  the  whole  of  England  is  one  market  for  the 
shares  and  bonds  of  a  large  English  railway.  In  ordinary 
times  a  dealer  will  sell,  say.  Midland  Railway  shares,  even  if 
he  has  not  them  himself ;  because  he  knows  they  are  always 
coming  into  the  market,  and  he  is  sure  to  be  able  to. buy 
them. 

But  the  strongest  case  of  all  is  that  of  securities  which  are 
called  "international,"  because  they  are  in  request  in  every 
part  of  the  globe.  They  are  the  bonds  of  the  chief  govem- 
Bk  ments,  and  of  very  large  public  companies  such  as  those  of  the 
^m  Suez  Canal  and  the  New  York  Central  Railway.  For  bonds 
^t  of  this  class  the  telegraph  keeps  prices  at  almost  exactly  the 
^H  same  level  in  all  the  stock  exchanges  of  the  world.  If  the 
I^B  price  of  one  of  them  rises  in  New  York  or  in  Paris,  in  London 
^^m  or  in  Berlin,  the  mere  news  of  the  rise  tends  to  cause  a  rise  in 
kK  other  markets ;  and  if  for  any  reason  the  rise  is  delayed,  that 
^H  particular  class  of  bonds  is  likely  soon  to  be  offered  for  sale  in 

I 


214  BOOK  V.    CH.  I.    §  4. 

the  high  priced  market  under  telegraphic  orders  from  the 
other  markets,  while  dealers  in  the  first  market  will  be  making 
telegraphic  purchases  in  other  markets.  These  sales  on  the 
one  hand,  and  purchases  on  the  other,  strengthen  the  tendency 
which  the  price  has  to  seek  the  same  level  everywhere  ^ 

Stock  exchanges  then  are  the  pattern  on  which  markets 
have  been,  and  are  being  formed  for  dealing  in 
market  for  the  niany  kinds  of  produce  which  can  be  easily  and 
tafj^'""^  "^^"  exactly  described,  are  portable  and  in  general  de- 
mand. The  material  commodities  however  which 
possess  these  qualities  in  the  highest  degree  are  gold  and 
silver.  For  that  very  reason  they  have  been  chosen  by  com- 
mon consent  for  use  as  money,  to  represent  the  value  of 
other  things;  and  the  world-market  for  them  is  most  highly 
organized. 

At  the  opposite  extremity  to  international  stock-exchange 
securities  and  the  more  valuable  metals  are,  firstly,  things 
which  must  be  made  to  order  to  suit  particular  individuals, 
such  as  well-fitting  clothes;  and  secondly,  perishable  and  bulky 
goods,  such  as  fresh  vegetables,  which  can  seldom  be  profitably 
carried  long  distances.  The  first  can  scarcely  be  said  to  have 
a  wholesale  market  at  all;  the  conditions  by  which  their 
price  is  determined  are  those  of  retail  buying  and  selling,  and 
the  study  of  them  may  be  postponed^. 

Thus  the  character  of  the  markets  varies  with  the  area  of 
Space  over  which  they  extend :  but  it  varies  even  more  with 

1  It  is  a  characteristic  fact  that  securities  which  are  part  of  large  issues 
are  preferred  on  the  Stock  excliange.     See  Principles  V.  i.  4. 

2  A  man  may  not  trouhle  himself  much  about  small  retail  purchases: 
he  may  give  half  a  crown  for  a  packet  of  paper  in  one  shop  which  he  could 
have  got  for  two  shillings  in  another.  But  it  is  otherwise  with  wholesale 
prices.  A  manufacturer  cannot  sell  a  ream  of  paper  for  six  shillings  whUe 
his  neighbour  is  selling  it  at  five.  For  those  whose  business  it  is  to  deal 
in  paper  know  almost  exactly  the  lowest  price  at  which  it  can  be  bought,  and 
will  not  pay  more  than  this.  The  manufacturer  has  to  sell  at  about  the 
market  price,  that  is  at  about  the  price  at  which  other  manfacturers  are 
selling  at  the  same  time. 


ON   MARKETS.  215 

the  length  of  Time  of  which  account  is  taken ;  and  we  shall 
find  that  if  the  period  is  short,  the  supply  is  limited  to  the 
stores  which  happen  to  be  at  hand :  if  the  period  is  longer,  the 
supply  will  be  influenced  by  the  cost  of  producing  the  com- 
modity in  question ;  and  if  the  period  is  very  long,  this  cost 
will  be  influenced  by  the  cost  of  producing  the  labour  and  the 
material  things  required  for  producing  the  commodity.  We 
shall  consider  in  the  next  chapter  those  temporary  equilibria 
of  demand  and  supply,  in  which  the  cost  of  producing  the 
connnodity  exerts  either  no  influence  or  merely  an  indirect 
influence. 

At  a  later  stage  we  shall  have  to  combine  the  difficulties 
with  regard  to  time  on  the  one  side  of  supply  with  those  on 
the  side  of  demand,  of  which  something  has  already  been  said'. 

1  Book  III.  Ch.  IV.  §  5. 


CHAPTER  II. 

TEMPORARY   EQUILIBRIUM   OF   DEMAND   AND   SUPPLY. 


K 


^^The  simplest  case  of  balance,  or  equilibrium,  between 
Equilibrium  desire  and  s^fort  is  found  when  a  person  satisfies 
between  desire  one  of  his  wants  by  his  own  direct  action,  as  for 
instance  when  he  picks  blackberries,  v  At  first 
the  pleasure  of  eating  is  much  more  than  enough  to  repay  the 
trouble  of  picking  ;  in  fact  the  action  of  picking  may  itself  be 
pleasurable  for  a  time.  But  after  he  has  eaten  a  good  deal, 
the  desire  for  more  diminishes ;  while  the  task  of  picking 
begins  to  cause  weariness.  This  weariness  may  be  caused 
more  by  monotony  than  by  fatigue.  And  when  at  last  his 
eagerness  to  play  and  his  disinclination  for  the  work  of  picking 
counterbalance  the  desire  for  eating,  equilibrium  is  reached. 
The  satisfaction  which  he  can  get  from  picking  fruit  has 
arrived  at  its  maximum:  for  up  to  that  time  every  fresh 
picking  has  added  more  to  his  pleasure  than  it  has  taken 
away;  and  after  that  time  any  further  picking  would  take 
away  from  his  pleasure  more  than  it  would  add. 

In  a  casual  bargain  that  one  person  makes  with  another, 
as  for  instance  when  two  backwoodsmen  barter  a  rifle  for  a 
canoe,  there  is  seldom  anything  that  can  properly  be  called 
an  equilibrium  of  supply  and  demand :  there  is  probably  a 
surplus  of  satisfaction  on  either  side ;  for  probably  the  one 
would  be  willing  to  give  something  besides  the  rifle  for  the 
canoe,  if  he  could  not  get  the  canoe  otherwise;  while  the 
other  would  in  case  of  necessity  give  something  besides  the 
canoe  for  the  rifle.  Let  us  then  turn  to  the  organised  markets 
of  modern  times  \ 

1  We  may  put  aside  also  as  of  very  little  practical  importance,  a  class  of 
dealings  which  have  occupied  a  good  deal  of  space  in  economic  literatui-e. 


k 


TEMPORARY  EQUILIBRIUM  OF  DEMAND  AND  SUPPLY.       217 

Let  us  take  an  illustration  from  a  corn-market  in  a  country 
town.     The  amount  which  each  farmer  or  other  illustration 
seller  offers  for  sale  at  any  price  is  governed  by  com-markerof 
his  own  need  for  money   in  hand,    and  by  his  ^  ^^^^  though 

1       ,      .  «      ,  It,  T    .  temporary 

calculation  or  the  present  and  future  conditions  equilibrium. 
of  the  market  with  which  he  is  connected.  There  are  some 
prices  which  no  seller  would  accept,  some  which  no  one  would 
refuse.  There  are  other  intermediate  prices  which  would  be 
accepted  for  larger  or  smaller  amounts  by  many  or  all  of  the 
sellers.  Let  us  assume  for  the  sake  of  simplicity  that  all  the 
corn  in  the  market  is  of  the  same  quality.  An  acute  dealer 
having  corn  for  sale  may  perhaps,  after  looking  around  him, 
come  to  the  conclusion  that  if  37  s.  could  be  got  throughout 
the  day,  the  farmers  between  them  would  be  willing  to  sell  to 
the  extent  of  about  1,000  quarters ;  and  that  if  no  more  than 
36s.  could  be  got,  several  would  refuse  to  sell,  or  would  sell 
only  small  quantities,  so  that  only  700  quarters  would  be 
brought  forward  for  sale ;  and  that  a  price  of  35s.  would  only 
induce  some  500  quarters  to  be  brought  foward.  Suppose  him 
further  to  calculate  that  millers  and  others  would  be  willing 
to  buy  900  quarters  if  they  could  be  got  at  35s.  each,  but 
only  700  if  they  could  not  be  got  for  less  than  36s.  and  only 
600  if   they  could  not  be  got  for  less  than   37s.  ^     He  will 

They  relate  to  such  thuigs  as  pictures  by  the  old  masters,  rare  coins  and 
other  things,  which  cannot  be  "graded"  at  all;  for  each  of  them  is  imique, 
and  has  no  direct  equivalent  or  competitor.  Anyone  who  offers  to  buy  such  a 
thing,  without  any  thought  of  selling  it  again,  has  to  assure  himself  only  that 
the  pleasure  he  will  derive  from  its  possession  is  as  great  as  that  which 
he  could  get  by  spending  its  price  in  any  other  way;  the  highest  price 
to  which  he  will  go  is  governed  by  the  utility  or  pleasure  giving  power 
to  him  of  money  on  the  one  hand  and  the  object  of  worth  on  the  other. 
And  therefore  the  price  at  which  such  a  thing  is  sold  will  depend  very  much 
on  whether  any  rich  persons  with  a  fancy  for  that  particular  thing  happen  to 
be  present  at  its  sale.  If  not,  it  will  probably  be  bought  by  dealers  who 
reckon  on  being  able  to  sell  it  at  a  profit ;  and  the  variations  in  the  price  for 
which  the  same  picture  sells  at  successive  auctions,  great  as  they  are,  would 
be  much  greater  still  if  it  were  not  for  the  steadying  influence  of  professional 
and  semi-professional  purchasers. 

1  This  result  of  his  study  of  the  market  may  be  put  in  a  tabular  form  thus : 


218  BOOK  V.   CH.  II.   I  1. 

conclude  that  a  price  of  36s.,  if  established  at  once,  would 
equate  supply  and  demand,  because  the  amount  offered  for  sale 
at  that  price  would  equal  the  amount  which  could  just  find 
purchasers  at  that  price.  He  will  therefore  take  at  once  any 
offer  considerably  over  36^.;  and  other  sellers  will  do  the  same. 
Buyers  on  their  part  will  make  similar  calculations ;  and 
if  at  any  time  the  price  should  rise  considerably  above  36s. 
they  will  argue  that  the  supply  will  be  much  greater  than 
the  demand  at  that  price  ;  therefore  even  those  of  them  who 
would  rather  pay  that  price  than  go  unserved,  wait,  and  by 
waiting  they  help  to  bring  the  price  down.  On  the  other 
hand,  when  the  price  is  much  below  366*.  even  those  sellers 
who  would  rather  take  the  price  than  leave  the  market  with 
their  corn  unsold,  may  argue  that  at  that  price  the  demand 
will  be  in  excess  of  the  supply  :  so  they  wait,  and  by  waiting 
lielp  to  bring  the  price  up. 

\^  The  price  of  36s.  has  thus  a  claim  to  be  called  the  true 
equilibrium  price^^^ecause  if  it  were  fixed  on  at  the  begin- 
ning, and  adhered^  to  throughout,  it  would  exactly  equate 
demand  and  supply  (i.e.  the  amount  which  buyers  were  willing 
to  purchase  at  that  price  would  be  just  equal  to  that  for 
which  sellers  were  willing  to  take  that  price) ;  and  because 
every  dealer  who  has  a  perfect  knowledge  of  the  circumstances 
of  the  market  expects  that  price  to  be  established.  If  he  sees 
the  price  differing  much  from  36s.  he  expects  that  a  change 
will  come  before  long,  and  by  anticipating  it  he  helps  it  to 
come  quickly  ^ 

Sellers  will  be  Buyers  will  be 

At  the  price  willing  to  sell  willing  to  buy 

376'.  1000  quarters,  600  quarters. 

36s.  700        „  700 

35s.  500        „  900        „ 

1  But  in  this  case  there  is  a  latent  assumption,  which  may  be  mischievous  if 
not  noticed,  that  the  marginal  utility  of  money  to  the  several  dealers  does  not 
appreciably  change  during  the  dealing.  This  is  generally  true  in  a  corn- 
market,  but  in  a  labour  market  the  exceptions  are  often  of  great  practical 
importance.  See  Fnnctjdes  V.  ii.  on  this  subject  and  for  a  "  Note  on 
Barter." 


CHAPTER  HI. 

EQUILIBRIUM   OF   NORMAL   DEMAND   AND   SUPPLY. 

§  1.  Even  in  the  corn-exchange  of  a  country  town  on  a 
market-day  the  equilibrium  price  is  affected  by  transition 
calculations  of  the  future  relations  of  production  from  market  to 
and  consumption;  while  in  the  leading  corn-  ""'"'"^  price, 
markets  of  America  and  Europe  dealings  for  future  delivery 
already  predominate  and  are  rapidly  weaving  into  one  web 
all  the  leading  threads  of  trade  in  corn  throughout  the  whole 
world.  If  it  is  thought  that  the  growers  of  any  kind  of  grain 
in  any  part  of  the  world  have  been  losing  money,  and  are 
likely  to  sow  a  less  area  for  a  future  harvest,  it  is  argued  that 
prices  are  likely  to  rise  as  soon  as  that  harvest  comes  into 
sight;  anticipations. of  that  rise  will  exercise  an  influence  on 
present  sales  for  future  delivery,  and  that  in  its  turn  influences 
cash  prices ;  so  that  these  prices  are  indirectly  aifected  by 
estimates  of  the  expenses  of  producing  further  supplies. 

But  in  this  and  the  following  chapters  we  are  specially 
concerned  with  movements  of  price  ranging  over  still  longer 
periods  than  those  for  which  the  most  far-sighted  dealers  in 
futures  generally  make  their  reckoning :  we  have  to  consider 
the  volume  of  production  adjusting  itself  to  the  conditions 
of  the  market,  and  the  normal  price  being  thus  determined 
at  the  position  of  stable  equilibrium  of  normal  demand  and 
normal  supply. 

§  2.     We   may    take   up   the   discussion   of    the   analogv 
between  the  supply  price  and  the  demand  price  The  account 
of  a  commodity  at  the  point  at  which  we  left  ii  °^  supply  price 

,  t    earned  a  little 

when,  for  the  moment  assuming  that  the  effici\  further. 


220  BOOK  V.   CH.  III.   §  2. 

ency  of  production  depended  solely  upon  the  exertions  of  the 
workers,  we  said  "  the  price  required  to  call  forth  the  exertion 
necessary  for  producing  any  given  amount  of  a  commodity 
may  be  called  the  supply  Pnce  for  that  amount'."  But  now 
we  have  to  take  account  of  the  fact  that  the  production  of  a 
commodity  generally  requires  many  different  kinds  of  labour 
and  the  use  of  capital  in  many  forms.  The  exertions  of  all 
the  different  kinds  of  labour  that  are  directly  or  indirectly 
involved  in  making  it;  together  with  the  abstinences  or 
rather  the  waitings  required  for  saving  the  capital  used  in 
making  it :    all  these  efforts  and  sacrifices  together  will  be 


„    ,      ,  called  its  Keal  Cost  of  Production.     The  sums 

Real  and  — 

Money  Cost  of  of  money  that  have  to  be  paid  for  these  efforts 
and  sacrifices  will  be  called  either  its  Money 
Cost  op  Production,  or,  for  shortness,  its  Expenses  op 
Expenses  of  PRODUCTION ;  they  are  the  prices  which  have  to 
Production.  y^^  ipaid  in  order  to  call  forth  an  adequate  supply 
of  the  efforts  and  waitings  that  are  required  for  making  it ; 
or,  in  other  words,  they  are  its  supply  price ^. 

We  may  arrange  the  things  required  for  making  a 
commodity  into  whatever  groups  are  convenient,  and  call 
Factors  of  pro-  t^em  its  FACTORS  OP  PRODUCTION.  Its  expenses 
duction.  of  production  when  any  given  amount  of  it  is 

produced  are  thus  the  supply  prices  of  the  corresponding 
quantities  of  its  factors  of  production.  And  the  sum  of  these 
is  the  supply  price  of  that  amount  of  the  commodity. 

These  expenses  of  production  are  estimated  on  tlie  margin 

of  cultivatTon. ""  That  is,  they  are  estimated  for  a  part  of  the 

%     1  Book  IV.  Cb.  I.  §  1.  

i  2  Mill  and  some  other  economists  have  followed  the  practice  of  ordinary 
*  life  in  using  the  term  Cost  of  Production  in  two  senses,  sometimes  to  signify 
'  the  difficulty  of  productfTglTlTiing,  and  sometimes  to  express  the  outlay  of 
money  that  has  to  be  incurred  in  order  to  induce  people  to  overcome  this 
difficulty  and  produce  it.  But  by  passing  from  one  use  of  the  term  to 
the  other  without  giving  explicit  warning,  they  have  led  to  many  misunder- 
standings and  much  barren  controversy. 


.EQUILIBRIUM   OF   NORMAL   SUPPLY   AND   DEMAND.      221 

produce  which  is  raised  either  on  land  that  pays  no  rent 
because  it  Is  poor  or  badly  situated;  or,  which  Rent  in  reia-  j 
is  more  probable,  they  are  raised  on  land  which  se°sVfVroduclr 
does  pay  rent,  but  by  applications  of  capital  tion. 
and  labour  which  only  just  pay  their  way,  and  therefore  can 
contribute  nothing  towards  the  rent.  It  is  these  expenses 
which  the  demand  must  just  cover :  for  if  it  does  not,  the 
supply  will  fall  off,  and  the  price  be  raised  till  it  does  cover 
them.\lt  is  to  these  expenses  therefore  that  the  price 
conforms :  and,  as  Ricardo  pointed  out,  rent  does  not  appear 
as  an  element  of  them'/\ 

1  Compare  above,  Book  IV.  ch.  in.  §  2.  Ricardo's  argument  may  be 
extended  to  the  ground-rents  of  factories  &c. :  but  this  introduces  questions 
of  great  difficulty,  for  a  full  treatment  of  which  the  reader  must  be  referred  to 
Pnnciples  V.  viii.  Even  with  regard  to  raw  produce  Ricardo's  doctrine  needs 
to  be  carefully  interpreted,  as  is  argued  in  the  same  place.  A  slight  and 
imperfect  sketch  of  the  main  position  with  regard  to  raw  produce  may  be 
inserted  here. 

Suppose  that,  with  an  average  harvest,  ten  million  quarters  of  com  are 
raised  in  England,  and  that  the  Expenses  of  production  of  the  last  million 
quarters  are  at  the  rate  of  35s.  a  quarter.  If  the  farmers  had  expected  to  get 
less  than  35s.  a  quarter  they  would  not  have  raised  these  last  quarters.  And 
since  they  find  it  worth-  their  while  to  raise  the  whole  ten  million,  we 
know  that  they  get  35s.  for  each  of  the  last  million.  And  in  the  same  market 
there  can  only  be  one  price  for  one  and  the  same  commodity.  Therefore 
the  average  price  of  all  the  corn  in  the  market  must  be  35s. 

The  Expenses  of  production  of  some  of  the  corn  may  have  been  only  25s.  a 
quarter.  The  35s.  got  for  a  quarter  of  this  corn  is  divided  into  25s.  which 
goes  to  the  farmer,  and  10s.  which  goes  to  the  landlord  as  rent.  And  if 
a  person  looks  at  this  corn  he  may  argue  that  its  whole  Expenses  of 
production  were  25s.  to  cover  the  farmer's  outlay  and  10s.  to  pay  his  rent, 
and  that  therefore  rent  enters  into  the  Expenses  of  production  of  this  corn. 
He  would  be  right  if  he  meant  only  that  the  Expenses  of  production  of 
this  particular  quarter  of  corn  cannot  be  found  by  merely  reckoning  up 
the  wages  and  profits  of  the  labour  and  capital  that  were  spent  in  raising  it. 
But  he  would  be  wrong  if  he  meant  that  the  selling  price  of  corn  was 
governed  by  the  rent  that  has  to  be  paid  for  the  use  of  land.  He  would 
then  be  mistaking  cause  for  effect,  and  effect  for  cause.  Rent  is  not  the 
cause  of  a  high  price  of  corn,  but  its  effect.  The  price  of  com  must  be  on  the 
average  just  high  enough  to  cover  the  Expenses  of  production  of  that  portion 
of  it  which  is  raised  under  the  most  unfavourable  conditions.  The  amount 
that  is  raised,  and  the  price  at  which  it  is  sold,  are  thus  governed  by  the 
numbers  of  the  population  which  demands  corn  on  the  one  hand,  and  by  the 


222  BOOK  V.  CH.  III.  §§  3,  4. 

§  3.  It  must  not  be  forgotten  that  trading  expenses  enter 
Relative  im-  ii^^o  the  expenses  of  production  in  almost  every 
portance  of        ^.jj^gg .    g^j^^j  that  in  some  cases  they  are  a  very 

different  ale-  '  /.     i  i     i         -i^        .  ,  / 

ments  of  Cost  large  part  of  the  whole.  For  instance,  the  supply 
o  Production,  pj^^^jg  ^f  wood  in  the  neighbourhood  of  Canadian 
forests  often  consists  almost  exclusively  of  the  price  of  the 
labour  of  lumber  men  :  but  the  supply  price  of  Canadian  deal 
in  the  wholesale  London  market  consists  in  a  large  measure  of 
freights ;  while  the  supply  price  of  the  same  wood  to  a  small 
retail  buyer  in  an  English  country  town  is  more  than  half 
made  up  of  the  charges  of  the  railways  and  middlemen  who 
have  brought  what  he  wants  to  his  doors,  and  keep  a  stock  of 
it  ready  for  him.  Again,  the  supply  price  of  a  certain  kind 
of  labour  may  for  some  purposes  be  analysed  into  the  expenses 
of  rearing,  of  general  education  and  of  special  trade  edu- 
cation. 

It  is  to  be  taken  for  granted  that  as  far  as  the  knowledge 
and  business  enterprise  of  the  producers  reach,  they  will  in 
each  case  choose  those  factors  of  production  which  are  best 
for  their  purpose ;  that  is,  which  will  attain  the  desired  end 
for  the  least  total  outlay  and  trouble  to  themselves.    Whenever 

amount  of  fertile  land,  which  is  the  source  of  supply,  on  the  other.  The  price 
tends  to  equal  the  Expenses  of  production  of  that  which  is  raised  under  the 
most  unfavourable  conditions  and  which  pays  no  rent.  The  rent  is  governed 
by  the  excess  of  this  price  over  the  Expenses  of  production  of  the  other 
produce  that  the  farmer  raises  more  easily. 

The  general  nature  of  the  extension  of  this  argument  to  Rents  other  than 
those  of  agricultural  land  may  be  indicated  thus : — When  different  producers 
have  different  advantages  for  producing  a  thing,  its  price  must  be  sufficient 
to  cover  the  expenses  of  production  of  those  producers  who  have  no  special 
and  exceptional  facilities;  for  if  not  they  will  withhold  or  diminish  their 
production,  and  the  scarcity  of  the  amount  supplied,  relatively  to  the  demand, 
will  raise  the  price.  When  the  market  is  in  equilibrium,  and  the  thing  is 
being  sold  at  a  price  which  covers  these  expenses,  there  remains  a  surplus 
beyond  their  expenses  for  those  who  have  the  assistance  of  any  exceptional 
advantages.  If  these  advantages  arise  from  the  command  over  free  gifts 
,  of  nature,  the  surplus  is  called  a  Producer's  Surplus  or  Producer's  Eent : 
there  is  a  Surplus  in  any  case,  and  if  the  owner  of  a  free  gift  of  nature  lends  it 
out  to  another,  he  can  generally  get  for  its  use  a  Rent  equivalent  to  this 
Surplus.     See  also  below.  Book  v.  Ch.  v.  §  4. 


EQUILIBRIUM  OF  NORMAL  DEMAND   AND   SUPPLY.      223 

it  appears  to  the  producers  that  this  is  not  the  case,  they  will, 
as   a   rule,   set   to  work    to   substitute   the   less  The  Law  of 
expensive^jaaetiiQiiw,  We  may  call  this,  for  con-  Substitution. 
venience  of  reference,  -The  law  of  substitution. 

§  4.     In  our  typical  market   then  we   assume   that   the 
forces    of   demand  and  supply  have    free    play ;  ^J^^  assume 
that  there  is  no  combination  among  dealers  on  f'"^^  P^^y  ^°^ 
either  side ;  but  each  acts  for  himself,  and  there  supply  in  the/ 
is/ree  competition;  that  is,  buyers  compete  freely  "^^^^^*-     -'' 
with  buyers,  and   sellers    compete   freely  with  sellers.     But 
though  everyone   acts   for   himself,   his   knowledge   of   what 
others  are  doing  is   supposed   to   be   generally  sufficient   to 
prevent   him  from  taking  a  lower  or  paying  a  higher  price 
than  others  are  doing. 

In  such  a  market  there  is  a  definite  demand  price  for  each 
amount  of  the  commodity,  that  is,  a  definite  price  at  which 
each  particular  amount  of  the  commodity  can  find  purchasers 
in  a  year,  or  whatever  other  period  we  choose  as  our  unit  of 
time :  the  more  of  a  thing  is  offered  for  sale  in  a  market,  the 
lower  is  the  price  at  which  it  will  find  purchasers ;  or  in  other 
wordlthe  demand  price  for  each  unit  diminishes  with  every 
increase  in  the  amount  offered.  J 

In  like  way  there  is  a  supply  price,  that  is,  a  price  which 
may  be  expected  to  call  forth  a  supply  of   each  particular 
amount  in  a  unit  of  time.     To  give  precision  to  the  ideas, 
let    us    suppose  that    a    person  well    acquainted 
with  the  woollen  trade  sets  himself  to  inquire  of  the  supply 
what   would    be    the    normal    supply  price  of    ^  ^^  ^  "  ^' 
certain  number  of  millions  of  yards  annually  of  a  particular 
kind  of  cloth.     He  would  have  to  reckon  (i)  the  price  of  the 
wool,  coal,  and  other  materials  which  would  be  used  up  in 
making  it,  (ii)  wear-and-tear  and  depreciation  of  the  buildings, 
machinery  and  other  fixed  capital,  (iii)  interest  and  insurance 
on  all  the  capital,  (iv)  the  wages  of  those  who  work  in  the 
factories,   and   (v)   the   gross   Earnings   of  Management,    (in- 


224 


BOOK  V.    CH.  III. 


4,  5. 


eluding  insurance  against  loss)  of  those  who  undertake  the 
risks,  who  engineer  and  superintend  the  working.  He  would 
of  course  estimate  the  supply  prices  of  all  these  different 
factors  of  production  of  the  cloth  with  reference  to  the 
amounts  of  each  of  them  that  would  be  wanted;  and  he  would 
suppose  that  the  conditions  of  supply  would  be  normal,  and 
that  the  expenses  of  production  were  those  of  a  Representative 
rirm\ 

Let  us  suppose  a  list  of  supply  prices  (or  a  supply  schedule) 
made  on  a  similar  plan  to  that  of  our  list  of  demand  prices  (or 
demand  schedule^):  the  supply  price  of  the  production  of  each 
amount  of  the  commodity  in  a  year  (or  any  other  unit  of  time) 
being  written  against  that  amount  ^.  As  the  (annual)  amount 
produced  increases,  the  supply  price  may  either  increase  or 

1  See  Book  IV.  Ch.  xiii.  §  1. 

2  See  Book  III.  Ch.  in.  §  4. 

3  Measuring,  as  in  the  case  of  the  Fig.  (5). 
demand  curve,  amounts  of  the  commodity 
along  Ox  and  prices  parallel  to  Oy,  we 
get  for  each  j)oint  M  along  Ox  a  line  31  P 
drawn  at  right  angles  to  it  measuring  the 
supply  price  for  the  amount  OM,  the 
extremity  of  which,  P,  may  be  called  a 
supply  point;  this  price  MP  being  made 
up  of  the  supply  prices  of  the  several 
factors  of  production  for  the  amount  OM. 
The  locus  of  P  may  be  called  the  supply 
curve. 

Suppose,  for  instance,  that  we  classify 
the  expenses  of  production  of  our  repre- 
sentative firm,  when  an  amount  OM  of 
cloth  is  being  produced,  under  the  heads      d  M 

of  (i)  Mp-i,  the  supply  price  of  the  wool 

and  other  circulating  capital  which  would  be  consumed  in  making  it,  {\t)  P\Pz 
the  corresponding  wear-and-tear  and  depreciation  on  buildings,  machinery 
and  other  fixed  capital;  (iii)^2P3  the  interest  and  insurance  on  all  the  capital, 
(iv)  jr?3P4  the  wages  of  those  who  work  in  the  factory,  and  (v)  i^iP  the  gross 
earnings  of  management,  &c.  of  those  who  undertake  the  risks  and  direct  the 
Avork.  Thus  as  M  moves  from  0  towards  the  right  Pi^p^^Pa^Pi  will  each 
trace  out  a  curve,  and  the  ultimate  supply  curve  traced  out  by  P  will  be  thus 
shown  as  obtained  by  superimposing  the  supply  curves  for  the  several  factors 
of  j)roduction  of  the  cloth. 

It  must  be  remembered  that  these  supply  prices  are  the  prices  not  of  units 


y^' 

F 

^H' 

^-^'^^^^^-^ 

V, 

.^^3' 

_^^-^" 

r. 

,-^^2' 

_^^^^^ 

V'Z 

--^ 

Pi 

""^'l' 

EQUILIBRIUM  OF  NORMAL  DEMAND  AND   SUPPLY.     22o^ 

diminish,  or  it  may  even  alternately  increase  and  diminish'. 
For  if  nature  is  offering  a  sturdy  resistance  to  man's  efforts  to 
wring  from  her  a  larger  supply  of  raw  material,  while  at  that 
particular  stage  there  is  no  great  room  for  introducing  im- 
portant new  economies  into  the  manufacture,  the  supply  price 
will  rise ;  but  if  the  volume  of  production  were  greater,  it 
would  perhaps  be  profitable  to  substitute  largely  machine  work 
for  hand  work  and  steam  power  for  muscular  force;  and  the 
increase  in  the  volume  of  production  would  have  diminished 
the  expenses  of  production  of  the  commodity  of  our  Repre- 
sentative firm^. 

§  5.     When  therefore  the  amount  produced  (in  a  unit  of 
time)  is  such  that  the  demand  price  is  greater  . 

than  the  supply  price,  then  sellers  receive  more  byequi- 
than  is  sufficient  to  make  it  worth  their  while  to  *  """^' 
bring  goods  to  market  to  that  amount ;  and  there  is  at  work 
an  active  force  tending  to  increase  the  amount  brought  forward 
for  sale.  On  the  other  hand,  when  the  amount  produced  is 
such  that  the  demand  price  is  less  than  the  supply  price, 
sellers  receive  less  thaji  is  sufficient  to  make  it  worth  their 
while  to  bring  goods  to  market  on  that  scale;  so  that  those 
who  were  just  on  the  margin  of  doubt  as  to  whether  to  go  on 
producing  are  decided  not  to  do  so,  and  there  is  an  active' 

of  the  several  factors  but  of  those  amounts  of  the  several  factors  which  are 
required  for  producing  a  yard  of  the  cloth.  Thus,  for  instance,  P3P4  is  the 
supply  price  not  of  any  fixed  amount  of  labour  but  of  that  amount  of  labour 
which  is  employed  in  making  a  yard  where  there  is  an  aggregate  production  of 
OM  yards.  (See  above,  §  3.)  We  need  not  trouble  ourselves  to  consider 
here  whether  the  gi'ound-rent  of  the  factory  must  be  put  into  a  class  by  itself: 
and  we  are  taking  no  notice  of  rates  and  taxes,  for  which  he  would  of  course 
have  to  make  his  account. 

1  That  is,  a  point  moving  along  the  supply  curve  towards  the  right 
may  either  rise  or  fall,  or  even  it  may  alternately  rise  and  fall. 

2  Those  cases  in  which  the  supply  price  falls  as  the  amount  increases 
involve  special  difficulties  of  their  own.  And,  in  order  that  we  may  get  a  clear 
view  of  the  broad  relations  between  normal  demand  and  supply,  let  us  leave 
them  out  of  account  here,  and  confine  our  attention  to  cases  in  which  the 
normal  supply  price  either  remains  constant  for  different  amounts  or  increases 
as  the  amount  produced  increases. 

M.  15 


226  BOOK  V.  CH.  III.  §§  5,  6. 

force  at  work  tending  to  diminish  the  amount  brought  forward 
for  sale.  When  the  demand  price  is  equal  to  the  supply  price, 
the  amount  produced  has  no  tendency  either  to  be  increased 
or  to  be  diminished;  it  is  in  equilibrium. 

When  demand  and  supply  are  in  equilibrium,  the  amount 
Equilibrium-     of  the  commodity  which  is  being  produced  in  a 

e"umbrium^        ^^^^    ^^    ^^^®    ^^^    ^®     Called    the    EQUILIBRIUM- 

price.  AMOUNT,  and  the  price  at  which  it  is  being  sold 

may  be  called  the  equilibrium-price  ;  and  such  an  equilibrium 
is  stable. 

For  if  any  accident  should  move  the  scale  of  production 
from  its  equilibrium  position  (or  position  of  rest),  there  will 
be  instantly  brought  into  play  forces  tending  to  bring  it  back 
to  that  position;  just  as,  if  a  stone  hanging  by  a  string  is 
displaced  from  its  equilibrium  position,  the  force  of  gravity 
will  at  once  tend  to  bring  it  back  to  its  equilibrium  position  \ 

1  It  will  be  found  to  be  a  characteristic  of  stable  equilibria  that  in  them 
the  demand  price  is  greater  than  the  supply  price  for  amounts  just  less  than 
the  equilibrium  amount,  and  vice  versa.  For  when  the  demand  price  is 
greater  than  the  supply  price,  the  amount  produced  tends  to  increase ;  and 
therefore,  if  the  demand  price  is  greater  than  the  supply  price  for  amounts 
just  less  than  an  equilibrium  amount,  then  if  the  scale  of  production  is 
temporarily  diminished  somewhat  below  that  equilibrium  position,  it  will  tend 
to  return ;  thus  the  equilibrium  is  stable  for  displacements  in  that  direction. 
If  the  demand  price  is  greater  than  the  supply  price  for  amounts  just  less 
than  the  equilibrium  amount,  it  is  sure  to  be  less  than  the  supply  price  for 
amounts  just  greater:  and  therefore,  if  the  scale  of  production  is  somewhat 
increased  beyond  the  equilibrium  position,  it  will  tend  to  return;  and  the 
equilibrium  will  be  stable  for  displacements  in  that  direction  also. 

_  To  represent  the  equilibrium  of  demand  and  sup- 

^ig«  (6)-  ply  geometrically  we  may  draw  the  demand  and 

supply  curves  together  as  in  Fig.  6.     If  then  OR 
(^  represents  the.  rate  at  which  production  is  being 

,aJ^s'  actually  carried  on,  and  Bd  the  demand  price  is 

greater  than  Rs  the  supply  price,  the  production  is 
exceptionally  profitable,  and  will  be  increased.    B, 
^Qt      the  amount-index,  as  we  may  call  it,  wiU  move  to 
the  right.    On  the  other  hand,  if  Rd  is  less  than  Bs, 
-~x        R  will  move  to  the  left.    If  Bd  is  equal  to  Bs,  that 
is,  if  7?  is  vertically  under  a  point  of  intersection 
of  the  curves,  demand  and  supply  are  in  equilibrium. 


/ 


EQUILIBRIUM  OF   NORMAL  DEMAND  AND   SUPPLY.      227 

But  in  real  life  such  oscillations  are  seldom  as  rhythmical 
as  those  of  a  stone  hanging  freely  from  a  string;  the  com- 
parison would  be  more  exact  if  the  string  were  supposed  to 
hang  in  the  troubled  waters  of  a  mill-race,  whose  stream  was 
at  one  time  allowed  to  flow  freely,  and  at  another  partially 
cut  off".  The  demand  and  supply  schedules  do  not  in  practice 
remain  unchanged  for  a  long  time  together,  but  are  constantly 
being  changed ;  and  every  change  in  them  alters  the  equi- 
librium amount  and  the  equilibrium  price,  and  thus  gives  new 
positions  to  the  centres  about  which  the  amount  and  the  price 
tend  to  oscillate.  ^ 

/     §    6.  y  There  has  been  a  long  controversy  as  to  whether   | 
I  "Cost  of  pi 'od notion"  or  "Utility"  governs  value,   influences    of  ^ 
It  might  as  leasonably  be  disputed  whether  it  is  Utility  and        f 

1  1     1        i.  .         p        .  Cost  of  pro- 

the  upper  or  the  lower  blade  of  a  pair  of  scissors  auction  on 
\     that  cuts  a  piece  of  paper.\  It  is  true  that  when  ^^  "^* 

one  blade  is  held  still,  and  the  cutting  is  effected  by  moving 
the  other,  we  may  say  with  careless  brevity  that  the  cutting 
is  done  by  the  second;  but  the  statement  is  not  strictly 
accurate,  and  is  to  be  excused  only  so  long  as  it  claims  to  be 
.  merely  a  "popular"  and  not  a  strictly  scientific  account  of 
what  actually  happens. 

In  the  same  way,  when  a  thing  already  made  has  to  be 
sold,  the  prices  which  people  will  be  willing  to 
pay  for  it  will  be  governed  by  their  desire  to  preponderates 
have   it,    together   with    the   amount   they    can  »"  "market 
afford  to  spend  on  it.     Their  desire  to  have  it 

This  may  be  taken  as  the  typical  diagram  for  stable  equilibrium  for  a 
commodity  that  obeys  the  Law  of  Diminishing  Return.  Bul^  if  we  had  made 
SS'  a  horizontal  straight  line,  we  should  have  represented  the  case  of 
"  Constant  Return,"  in  which  the  supply  price  is  the  same  for  all  amounts  of 
the  commodity.  And  if  we  had  made  SS'  inclined  negatively,  but  less  steeply 
than  DD',  we  should  have  got  a  case  of  stable  equilibrium  for  a  commodity 
which  obeys  the  Law  of  Increasing  Return.  In  either  case  the  above 
reasoning  remains  unchanged  without  the  alteration  of  a  word  or  a  letter; 
but  the  last  case  introduces  difficulties  for  a  discussion  of  which  the  reader 
must  be  referred  to  Principles  V.  xi. 

15—2 


228  BOOK  V.   CH.  III.   §  6. 

depends  partly  on  the  chance  that,  if  they  do  not  buy  it, 
they  will  be  able  to  get  another  thing  like  it  at  as  low  a  price : 
this  depends  on  the  causes  that  govern  the  supply  of  it,  and 
this  again  upon  Cost  of  production.  But  it  may  so  happen 
that  the  stock  to  be  sold  is  practically  fixed.  This  for  instance 
is  the  case  with  a  fish  market,  in  which  the  value  of  fish  for 
the  day  is  determined  almost  exclusively  by  the  stock  on  the 
slabs  in  relation  to  the  demand.  And  if  a  person  chooses  to 
take  the  stock  for  granted;  and  say  that  the  price  is  governed 
by  demand,  his  brevity  may  perhaps  be  excused  so  long  as  he 
does  not  claim  strict  accuracy.  So  again  it  may  be  pardonable, 
but  it  is  not  strictly  accurate  to  say  that  the  varying  prices 
which  the  same  rare  book  fetches,  when  sold  and  resold  at 
Christie's  auction  room,  are  determined  exclusively  by 
demand. 

Taking  a  case  at  the  opposite  extreme,  we  find  some 
the  latter  in  commodities  which  conform  pretty  closely  to  the 
normal  values,  j^^^  ^f  Constant  Return;  that  is  to  say,  their 
average  cost  of  production  will  be  very  nearly  the  same 
whether  they  are  produced  in  small  quantities  or  in  large. 
In  such  a  case  the  normal  level  about  which  the  market  price 
fluctuates  will  be  this  definite  and  fixed  (money)  Cost  of 
production.  If  the  demand  happens  to  be  great,  the  market 
price  will  rise  for  a  time  above  the  level;  but  as  a  result 
production  will  increase  and  the  market  price  will  fall:  and 
conversely,  if  the  demand  falls  for  a  time  below  its  ordinary 
level. 

In  such  a  case,  if  a  person  chooses  to  neglect  market 
fluctuations,  and  to  take  it  for  granted  that  there  will  anyhow 
be  enough  demand  for  the  commodity  to  insure  that  some 
of  it,  more  or  less,  will  find  purchasers  at  a  price  equal 
to  this  Cost  of  production,  then  he  may  be  excused  for 
ignoring  the  influence  of  demand,  and  speaking  of  (normal) 
price  as  determined  by  Cost  of  production — provided  only  he 
does   not   claim   scientific  accuracy  for   the   wording   of   his 


EQUILIBRIUM   OF   NORMAL   DEMAND  AND   SUPPLY.     229 

doctrine,  and  explains  the  influence  of   demand  in  its  right 
place. 

Thus  we  may  say  that,  as  a  general  rule,  the  shorter  the 
period  which  we  are  considering  the  greater  must  be  the  share 
of  our  attention  which  is  given  to  the  influence  of  demand  on 
value ;  and  the  longer  the  period,  the  more  important  will  be 
the  influence  of  cost  of  production  on  valued 

1  The  earlier  economists  of  this  century  were  in  the  habit  of  speaking 
briefly  of  cost  of  production  as  determining,  i.e.  governing,  value :  having  in 
mind  the  typical  case  of  the  normal  value  of  a  thing  that  obeys  the  Law  of 
Constant  Return.  But  the  habit  proved  mischievous.  It  confused  many  of 
their  readers;  and  they  themselves  were  led  by  it  to  pay  too  little  attention 
to  the  influence  of  demand  in  cases  in  which  it  was  really  important.  And 
about  twenty  years  ago  Jevons  (and  some  others)  made  a  careful  study  of 
demand,  doing  excellent  work;  and  it  was  only  natural  that  he  should 
complain  of  the  way  in  which  demand  had  been  slighted  by  most  (though  not 
all)  of  the  earlier  writers.  But  he  went  further  than  this.  He  declared 
Ricardo's  doctrine  to  be  fundamentally  wrong ;  and  asserted  in  opposition  to 
it  that  "  value  depends  entirely  on  utility." 

But  this  seems  to  be  an  error.  For  the  half-truth  that  value  is  governed 
by  utility,  if  put  forward  as  the  whole  truth,  is  equally  unscientific  and 
practically  a  great  deal  more  misleading  and  mischievous  than  the  other  half- 
truth  that  value  is  governed  by  cost  of  production. 

The  subject  of  this  Section  is  discussed  at  length  in  the  "  Note  on  Ricardo's 
Theory  of  Value"  at  the  end  of  Book  V.  of  the  Frinciples;  where  also 
Ricardo  is  defended  from  the  charge  that  he  lends  support  to  the  doctrine 
of  Carl  Marx  and  other  socialists  that  normal  value  is  governed  by  the 
labour-cost  of  production  of  a  commodity  without  any  reference  to  that 
waiting-cost  which  is  involved  by  keeping  the  requisite  capital  ready  for  use, 
and  is  rewarded  by  interest  on  capital. 


CHAPTER   IV. 

INVESTMENT   OF   RESOURCES   FOR   A   DISTANT   RETURN. 
PRIME   COST  AND  TOTAL  COST. 

§  1.  Let  us  suppose  a  man  to  build  a  house  for  himself  on 
Motives  deter-  land,  and  of  materials,  which  Nature  supplies 
JJeTtment^o/"'  ^^*^*^)  ^^^  *^  make  his  implements  as  he  goes; 
capital.  the  labour  of  making  them  being  counted  as  part 

of  the  labour  of  building  the  house.  He  would  have  to  estimate 
the  efforts  required  for  building  on  any  proposed  plan ;  and  to 
allow  almost  instinctively  an  amount  increasing  in  geometrical 
proportion  (a  sort  of  compound  interest)  for  the  period  that 
would  elapse  between  each  effort  and  the  time  when  the  house 
would  be  ready  for  his  use.  The  utility  of  the  house  to  him 
when  finished  would  have  to  compensate  him  not  only  for  the 
efforts,  but  for  the  waitings'. 

This  case  illustrates  the  way  in  which  the  efforts  and 
sacrifices  which  are  the  Real  cost  of  production  of  a  thing, 
underlie  the  expenses  which  are  its  Money  cost.  But  the 
modern  business  man  commonly  takes  the  payments  which  he 
has  to  make,  whether  for  wages  or  raw  material,  as  he  finds 
them  ;  without  staying  to  inquire  how  far  they  are  an  accurate 
measure  of  the  efforts  and  sacrifices  to  which  they  correspond. 
His  expenditure  is  generally  made  piece-meal ;  and  the  longer 
he  expects  to  wait  for  the  fruit  of  any  outlay,  the  richer  must 
that  fruit  be  in  order  to  compensate  him.  The  anticipated 
fruit  may  not  be  certain ;  and  in  that  case  he  will  have  to 
allow  for  the  risk  of  failure.     After  making  that  allowance, 

1  See  above  Book  IV.  Ch.  vm.  §  6. 


INVESTMENT  OF  RESOURCES  FOR  A  DISTANT  RETURN.    231 

the  fruit  of  the  outlay  must  be  expected  to  exceed  the  outlay 
itself  by  an  amount  which,  independently  of  his  own  remu- 
neration, increases  at  compound  interest  in  proportion  to  the 
time  of  waiting  \ 

§  2.  At  the  beginning  of  a  business  an  estimate  is  made 
of  the  profits  likely  to  be  earned  in  it.  The  xhe  Law  of 
undertaker  is  continually  comparing  the  efficiency  Substitution, 
and  the  supply  prices  of  difierent  factors  of  production  which 
may  be  used  in  obtaining  the  same  result,  so  as  to  hit  upon 
that  combination  which  will  give  the  .  largest  incomings  in 
proportion  to  any  given  outlay ;  or,  in  other  words,  he  is 
ceaselessly  occupied  with  the  Law  of  Substitution^. 

Every  locality  has  incidents  of   its  own  which  affect  in 
various  ways  the  methods  of  arrangement  of  every  class  of 
business  that  is  carried  on  in  it.     But  even  in  the  same  place 
and  the  same  trade  no  two  persons  pursuing  the  same  aims 
will  adopt  exactly  the  same  routes.    The  tendency  Different 
to  variation  is  a  factor  of  progress ;  and  the  abler  routes  are 
are  the  undertakers  in  any  trade  the  more  power-  taining  the 
ful  is  this  factor  likely  to  be.     In  some  trades,  ®^™^  ^"'^• 
as  for  instance  cotton-spinning,   the  possible   variations   are 
confined  within  narrow  limits  :  no  one  can  hold  his  own  at  all 
who   does   not   use   machinery,    and   very  nearly  the   latest 
machinery,  for  every  part  of  the  work.     But  in  others,  as  for 
instance  in  some  branches  of  the  wood  and  metal  trades,  in 
farming,  and  in  shopkeeping  there  can  be  great  variations. 
For  instance,  of  two  manufacturers  in  the  same  trade,  one  will 
perhaps  have  a  larger  wages  bill  and  the  other  heavier  charges 
on  account  of  machinery ;  of  two  retail  dealers  one  will  have  a 
larger  capital  locked  up  in  stock,  and  the  other  will  spend 
more  on  advertisements  and  other  means  of  building  up  the 
immaterial  capital  of  a  profitable  trade  connection.     And  in 

1  The  analysis  indicated  in  this  Section  is  worked  out  fully  in  Frincijdes 
V.  IV.  1,  2. 

2  Book  V.  Ch.  III.  §  3. 


232  BOOK  V.  CH.  IV.  §§  2,  3. 

minor  details  the  variations  are  numberless.  Each  man's 
actions  are  influenced  by  his  special  opportunities  and  re- 
sources, as  well  as  by  his  temperament  and  his  associations. 

But  each  man,  taking  account  of  his  own  means,  will  push 
the  investment  of  capital  in  his  business  in  each  several 
direction  until  what  appears  in  his  judgment  to  be  the  margin 
The  margin  of  oi  profitableness  is  reached ;  that  is,  until  there 
profitableness,  ggems  to  him  no  good  reason  for  thinking  that 
the  gains  resulting  from  any  further  investment  in  that 
particular  direction  would  compensate  him  for  his  outlay. 
The  margin  of  profitableness  is  not  to  be  regarded  as  a  mere 
point  on  any  one  fixed  line  of  possible  investment ;  but  as  a 
boundary  line  of  irregular  shape  cutting  one  after  another 
every  possible  line  of  investment. 

§  3.  When  investing  his  capital  in  providing  the  means 
of  carrying  on  a  business,  the  undertaker  looks  to  being 
recouped  by  the  price  obtained  for  its  various  products ;  and 
he  expects  to  be  able  under  normal  conditions  to  charge  for 
each  of  them  a  price  that  will  cover  not  only  its  (Money) 
fepecial,  Direct  or  Prime  Cost;  i.e.  expenses  which  he 
f  Prime  Cost.       incurs  directly  and  specially  for  it,  but  also  a 

f  Suppiem«i-      share  of  the  general  expenses  of   the  business, 

i  Cost.  which   we  may   call  its   Supplementary   Cost. 

f  These  two  elements  together  make  its  (Money)  Total  Cost. 

;  The  term  Prime  Cost  is  used  in  different  ways  in  different 

businesses.  But  it  will  be  best  to  take  it  here  in  a  rather 
narrow  sense,  which  includes  nothing  but  the  (money)  cost  of 
the  raw  material  used  in  making  the  commodity  and  the 
wages  of  that  part  of  the  labour  spent  on  it  which  is  paid  by 
the  day  or  the  week.  The  salaries  of  the  upper  employes  are 
excluded,  partly  because  the  time  which  they  have  devoted 
specially  to  it  cannot  always  be  easily  ascertained,  and  partly 
because  the  charges  to  which  the  business  is  put  on  account  of 
their  salaries  cannot  be  adapted  quickly  to  changes  in  the 
amount  of  work  there  is  for  them  to  do. 


INVESTMENT  OF  RESOURCES  FOR  A  DISTANT  RETURN.    233 

This  is  the  Prime  cost  which  a  manufacturer  has  com- 
monly in  view  when,  trade  being  slack,  he  is  calculating  the 
lowest  price  at  which  it  would  be  worth  his  while  to  accept 
an  order,  irrespectively  of  any  effect  that  his  action  might 
have  in  spoiling  the  market  for  future  orders.  In  trades 
which  use  very  expensive  plant,  the  Supplementary  cost  of 
goods  is  a  large  part  of  their  Total  cost;  and  an  order  at 
much  less  than  their  normal  price  may  leave  a  large  surplus 
above  their  direct,  special  or  Prime  cost. 

But,  as  will  be  more  clearly  seen  in  the  next  Chapter, 
every  class  of  business  must  afford,  in  the  long  run,  prices 
that  cover  the  Supplementary  as  well  as  the  Prime  costs  of 
the  things  produced  by  it ;  otherwise  capital  and  labour  will 
tend  to  leave  the  trade.  And  the  income  which  in  the  long 
run  covers  Supplementary  costs,  and  thus  enters  into  normal 
Profits,  will  be  found  to  have  some  resemblance  to  Rent  for 
problems  that  deal  only  with  short  periods. 


CHAPTER  V. 

EQUILIBRIUM  OF  NORMAL  DEMAND  AND  SUPPLY,  CON- 
TINUED. THE  TERM  NORMAL  WITH  REFERENCE  TO 
LONG  AND  SHORT  PERIODS. 

§  1.  When  it  is  said  that  the  price  of  wool  on  a  certain 
day  was  abnormally  high  though  the  average  price  for  the 
year  was  abnormally  low,  that  the  wages  of  coal-miners  were 
abnormally  high  in  1872  and  abnormally  low  in  1879,  that  the 
^  (real)  wages  of  labour  were  abnormally  high  at 
the  term  the  end  of  the  fourteenth  century,  and  abnormally 

norma .  j^^    .^   ^^^   middle   of  the  sixteenth,   everyone 

understands  that  the  scope  of  the  term  normal  is  not  the 
same  in  these  various  cases. 

But  though  applications  of  the  term  Normal  are  thus 
d  h  t  ®l^^^i^^  ^^^  capable  of  being  extended  gradually 
period  normal  from  very  short  to  very  long  periods ;  yet  these 
prices.  periods  may  be  divided  roughly  into  two  classes. 

In  the  first  class  there  is  time  for  the  supply  of  those  things 
which  are  used  in  producing  the  commodity  (or  in  other 
words,  its  factors  of  production),  to  adapt  itself  to  the 
demand ;  in  the  second  class  there  is  not. 

1  Compare  above  Book  i.  Ch.  vi.  §  5.  The  economist  merely  brings  to 
light  difficulties  that  are  latent  in  the  common  discourse  of  life,  so  that  by 
being  frankly  faced  they  may  be  thoroughly  overcome.  For  in  ordinary  life 
it  is  customary  to  use  the  word  Normal  in  different  senses,  with  reference  to 
different  periods  of  time ;  and  to  leave  the  context  to  explam  the  transition 
from  one  to  another.  The  economist  follows  this  practice  of  every  day  life : 
but,  by  takuig  pains  to  indicate  this  transition,  he  sometimes  seems  to  have 
created  a  complexity,  which  in  fact  he  has  only  revealed. 


LONG  AND  SHORT  PERIODS.  235 

For    instance,    on   the   day   following    a    large   catch   of 
mackerel   the   price   in   the   market   may  settle  ju^^^j.  .j 
down  after  a  little  manoeuvring  to  an  equilibrium  from  fish- 
level  at  as  many  pence  as  it  had  been  at  shillings  "^^^ 
on  the  previous  day;  and  this  change  will  in  no  way  depend 
on  the  normal  cost  of  catching  mackerel,  it  will  be  governed 
by  the  volume  of  the  past  catch,  with  perhaps  oscillations  of 
some  slight  reference  to  the  chance  that  a  similar  market  price 

.  about  short- 

catch  may  be  had  on  the  morrow.     If  we  suppose  period  normal 

the  boat  to  be  owned  by  a  capitalist  undertaker  ^"PP^y  P"<=^- 

who  pays  the  fisherman  by  the  day,  the  net  earnings  of  his  boat 

for  the  day  will  be  the  excess  of  the  price  he  gets  for  his  fish 

over  his  outlay  for  wages  and  stores,  together  with  allowance 

for  the  injury  done  to  the  boat  and  net  by  the  day's  work\ 

For  that  particular  day  this  excess  may  be  either  more  or 
less  than  the  normal  supply  price  required  to  make  it  worth 
his  while  to  provide  the  boat  and  its  equipment  and  the 
business  organization  needed  for  managing  it  and  selling  its 
catch.  But  if,  in  the  long  run  and  on  the  average,  it  is  more 
than  this  normal  supply  price,  capital  will  drift  into  the 
fishing  trade ;  if  less,  it  will  drift  out ;  that  is  to  say  old  boats 
and  nets,  when  worn  out,  will  seldom  be  replaced.  And 
therefore,  if  the  general  conditions  of  the  fishing  trade  are 
"Stationary"  the  earnings  of  the  boat  will  oscillate  about  this 
normal  supply  price  as  a  position  of  stable  equilibrium. 

But  next  suppose  there  to  be  great  increase  in  the  general 
demand  for  fish,  such  for  instance  as  might  arise  Oscillations  of 
from  the  spreading  of  a  disease  through  all  kinds  normal  supply 
of  farm  stock  simultaneously,  by  which  meat  was  P"ce  about  its 

J  ^      J  ^  equilibrium 

made  a  dear  and  dangerous  food.     The  increased  position, 
demand  for  fish  could  not  well  be  met  without  bringing  into 
the  fishing  trade  some  people  from  outside,  who  were   not 
fitted  by  training  to  do  its  work  well,  and  to  whom  many  of 

1  This  excess  we  shall  find  reason  later  on  to  call  a  Prodxicer^s  Surplus 
or  Quasi-rent. 


23()  BOOK   V.    CH.    V.   §§   1—3. 

its  ordinary  incidents  would  prove  great  hardships.  Old  and 
unsuitable  boats  would  be  pressed  into  the  service ;  while  the 
better  class  of  boats  would  earn  an  excess  above  the  expenses 
of  working  them,  that  would  amount  in  a  year  perhaps  to 
fifty  per  cent,  or  more  on  their  total  cost ;  and  able  fishermen, 
whether  paid  by  shares  or  by  the  day,  might  for  a  time  get 
twice  their  ordinary  wages.  Thus  the  (short-period)  normal 
price  of  fish  would  be  higher  than  before.  Variations  in  the 
catch  of  fish  from  day  to  day  might  make  the  market  price 
oscillate  at  least  as  violently  as  before  about  this  normal  level 
for  an  increased  amount,  but  this  level  would  rise  rapidly 
with  every  such  increase  of  demand. 

Of  course  these  high  prices  would  tend  to  bring  capital 
and  labour  into  the  trade :  but  if  it  were  expected  that  the 
disease  among  live  stock  would  not  last  very  long,  and  that 
therefore  the  unusual  demand  for  fish  would  die  away  in  a 
few  years,  people  would  be  cautious  about  investing  capital 
and  skill  in  a  trade  that  was  in  danger  of  being  glutted.  And 
therefore,  though  when  the  demand  slackened  off,  the  price 
would  fall  too,  and  probably  below  its  old  level ;  yet  so  long 
as  the  demand  was  fully  maintained  the  price  would  keep  up. 
And  here  we  see  an  illustration  of  the  almost  universal  law 
that  an  increase  in  the  amount  deinanded  raises  the  short-period 
normal  supply  price. 

§  2.  But  if  we  turn  to  consider  the  long-period  normal 
supply  price,  we  shall  find  that  it  is  governed  by  a  different 
Long  period  set  of  causes,  and  with  different  results.  For 
mand^and "  suppose  that  the  disuse  of  meat  causes  a  permanent 
supply  in  distaste  for  it,  and  that  an  increased  demand  for 

equilibrium.  g^j.^^  continues  long  enough  to  enable  the  forces 
by  which  its  supply  is  governed  to  work  out  their  action 
fully.  The  source  of  supply  in  the  sea  might  perhaps  show 
signs  of  exhaustion,  and  the  fishermen  might  have  to  resort 
to  more  distant  coasts  and  to  deeper  waters,  Nature  giving  a 
Diminishing  Return  to  the  increased  application  of   capital 


LONG  AND  SHORT  PERIODS.  237 

and  labour  of  a  given  order  of  efficiency.  On  the  other  hand, 
those  might  turn  out  to  be  right  who  think  that  man  is 
responsible  for  but  a  very  small  part  of  the  destruction  of  fish 
that  is  constantly  going  on ;  and  in  that  case  a  boat  starting 
with  equally  good  appliances  and  an  equally  efficient  crew 
would  be  likely  to  get  nearly  as  good  a  haul  after  the  increase 
in  the  total  volume  of  the  fishing  trade  as  before.  In  any 
case  the  normal  Real  Cost  and  therefore  (the  general  purchas- 
ing power  of  money  being  assumed  stationary)  the  normal 
Money  Cost  of  equipping  a  good  boat  with  an  efficient  crew 
would  certainly  not  be  higher,  and  probably  be  a  little  lower 
after  the  trade  had  settled  down  to  its  now  increased  dimen- 
sions than  before.  For  since  fishermen  require  only  trained 
aptitudes,  and  not  any  exceptional  natural  qualities,  their 
number  could  be  increased  in  less  than  a  generation  to  almost 
any  extent  that  was  necessary  to  meet  the  demand ;  while  the 
industries  connected  with  building  boats,  making  nets  &c. 
being  now  on  a  larger  scale  would  be  organized  more 
thoroughly  and  economically.  If  therefore  the  waters  of  the 
sea  showed  no  signs  of  depletion  of  fish,  an  increased  supply 
could  be  produced  at  a'  lower  price  after  a  time  sufficiently 
long  to  enable  the  normal  action  of  economic  causes  to  work 
itself  out :  and,  the  term  Normal  being  taken  to  refer  to  a 
long  period  of  time,  the  normal  price  of  fish  would  decrease 
with  an  increase  in  the  amount  produced. 

§  3.     To   take   an   illustration  from  manufacture   let   us 
revert  to  the  case  of  the  supply  price  of  a  certain  illustration 
amount  of  a  particular  kind  of  cloth  \     We  saw  ^^°"^  ^^^  ^?^^ 

*^  of  production 

that  to  estimate  it  a  person  would  first  calculate  of  cloth, 
the  supply  prices  of  all  its  difierent  factors  of  production  with 
reference  to  the  amounts  of  each  of  them  that  would  be 
wanted,  and  on  the  supposition  in  the  first  instance  that  the 
conditions  of  supply  would  be  "  normal."  But  now  we  have 
to    notice    that    he    would   give    to    this    term   a   wider   or 

1  Above,  Ch.  m.  §  4. 


238  BOOK  V.   CH.  V.  §§  3,  4. 

narrower  range  according  as  he  was  looking  more  or  less  far 
ahead. 

Thus  in  estimating  the  wages  required  to  call  forth  an 
adequate  supply  of  labour  to  work  a  certain  class  of  looms, 
he  might  take  the  current  wages  of  similar  work  in  the 
neighbourhood :  or  he  might  argue  that  there  was  a  scarcity 
of  that  particular  class  of  labour  in  the  neighbourhood,  that 
its  current  wages  there  were  higher  than  in  other  parts  of 
England,  and  that  looking  forward  over  several  years  so  as  to 
allow  for  immigration,  he  might  take  the  normal  rate  of 
wages  at  a  rather  lower  rate  than  that  prevailing  there  at 
the  time.  Or  lastly,  he  might  think  that  the  wages  of 
weavers  all  over  the  country  were  abnormally  low  relatively 
to  others  of  the  same  grade,  in  consequence  of  a  too  sanguine 
view  having  been  taken  of  the  prospects  of  the  trade  half  a 
generation  ago.  He  might  argue  that  this  branch  of  work  was 
overcrowded,  that  parents  had  already  begun  to  choose  other 
trades  for  their  children  which  offered  greater  net  advantages 
and  yet  were  not  more  difficult ;  that  in  consequence  a  few 
years  would  see  a  falling-off  in  the  supply  of  labour  suited 
for  his  purpose ;  so  that  looking  forward  a  long  time  he  must 
take  normal  wages  at  a  rate  rather  higher  than  the  present 
average. 

§  4.  To  go  over  the  ground  in  another  way.  Market 
values  are  governed  by  the  relation  of  demand  to  stocks 
actually  in  the  market;  with  more  or  less  reference  to 
'future'  supplies,  and  not  without  some  influence  of  trade 
combinations.  But  the  current  supply  is  in  itself  the  result 
of  the  action  of  producers  in  the  past ;  this  action  has  been 
mainly  determined  by  their  comparing  the  prices  which  they 
expect  to  get  for  their  goods  with  the  expenses  to  which  they 
will  be  put  in  producing  them.  The  range  of  expenses  of 
which  they  take  account  will  depend  on  whether  they  are 
merely  considering  the  extra  expenses  of  certain  extra  produc- 
tion with  their  existing  plant,  or  are  considering  whether  to 


LONG  AND  SHORT  PERIODS.  239 

lay  down  new  plant  for  the  purpose.  But  in  any  case  it  will 
be  the  general  rule  that  that  portion  of  the  supply  which  can 
be  most  easily  produced  will  be  produced,  unless  the  price  is 
expected  to  be  very  low.  Every  increase  in  the  price  expected 
will,  as  a  rule,  induce  some  people  who  would  not  otherwise 
have  produced  anything,  to  produce  a  little ;  while  those  who 
have  produced  something  for  the  lower  price,  will  probably 
produce  more  for  the  higher  priced 

Finally  then  the  general  drift  of  the  term  Normal  Supply 
price  is  always  the  same  whether  the  period  to  The  general 
which  it  refers  is  short  or  long;   but  there  are  fe"m  Normal 
great  differences  in  detail.    In  every  case  it  means  Supply  Price 
the  price  the  expectation  of  which  is  sufficient  short  and  long 
and  only  just  sufficient  to  make  it  worth  while  periods. 
for  people  to  produce  (daily)  a  certain  aggregate  amount :  in 
every  case  it  is  the  marginal  cost  of  production ;  that  is,  it  is 
the  cost  of  production  of  those  goods  which  are  on  the  margin 
of  not  being  produced  at  all,  and  which  would  not  be  produced 
if  the  price  to  be  got  for  them  were  expected  to  be  at  all  lower. 
But  the  causes  which  determine  this  margin  vary  with  the 
length  of  the  period  under  consideration^. 

1  The  producers  who  are  in  doubt  whether  to  produce  anything  at  all  may 
be  said  to  lie  altogether  on  the  margua  of  production  (or,  if  they  are  agricul- 
turists, on  the  margin  of  cultivation).  Their  decision  exerts  some  influence 
on  supply  and  therefore  on  price.  But  as  a  rule  they  are  very  few  in  number; 
there  may  be  none  in  this  position ;  and  anyhow  their  action  is  far  less  impor- 
tant than  that  of  the  great  body  of  producers  who  will  produce  something 
whatever  be  the  price  (within  certain  limits),  but  watch  the  price  to  see  how 
far  it  is  worth  their  while  to  extend  their  production.  That  part  of  their  pro- 
duction with  regard  to  which  such  persons  are  on  the  margin  of  doubt  as  to 
whether  it  is  worth  while  for  them  to  produce  it  at  the  price,  is  to  be  included 
together  with  that  of  the  persons  who  are  in  doubt  whether  to  produce  at  all; 
the  two  together  constitute  the  marginal  production  at  that  price. 

2  Of  course  there  is  no  hard  and  fast  line  of  division  between  "long"  and 
"short"  periods,  and  the  periods  for  which  prices  are  reckoned  may  be  divided 
into  any  number  of  classes  according  to  their  length.  Four  classes  however 
stand  out.  In  each,  price  is  governed  by  the  relations  between  demand  and 
supply.  But  as  regards  marhet  prices,  supply  is  taken  to  mean  the  stock  of 
the  commodity  in  question  which  is  on  hand,  or  at  all  events  "in  sight."    As 


240  BOOK  V.   CH.  V.  I  4. 

The  immediate  effect  of  the  expectation  of  a  high  price  is 
But  for  short  ^o  cause  people  to  bring  into  active  work  all 
periods  the        their  appliances  of  production,  and  to  work  them 

appliances  of  -^  *  -^  . 

production  full  time  and  perhaps  over-time.  The  marginal 
t^akeVfor^  supply  price  is  then  the  money  cost  of  production 
granted.  of   that  part  of   the  produce  which  forces   the 

undertaker  to  hire  such  inefficient  labour  (perhaps  tired  by 
working  over-time)  at  so  high  a  price,  and  to  put  himself  and 
others  to  so  much  strain  and  inconvenience  that  he  is  on  the 
margin  of  doubt  whether  it  is  worth  his  while  to  do  it  or  not. 
The  immediate  effect  of  the  expectation  of  a  low  price  is  to 
throw  many  appliances  for  production  out  of  work,  and  slacken 
the  work  of  others.  If  the  producers  had  no  fear  of  spoiling 
their  markets,  it  would  be  worth  their  while  to  produce  for  a 
time  for  any  price  that  covered  the  Prime  costs  of  production 
and  rewarded  them  for  their  own  trouble.  But,  as  it  is,  they 
generally  hold  out  for  a  higher  price ;  each  man  fears  to  spoil 
his  chance  of  getting  a  better  price  later  on  from  his  own 
customers ;  or,  if  he  produces  for  a  large  and  open  market,  he 
is  more  or  less  in  fear  of  incurring  the  resentment  of  other 
producers,  should  he  sell  needlessly  at  a  price  that  spoils  the 
common  market  for  all.  The  marginal  production  in  this 
case  is  the  production  of  those  whom  a  little  further  fall  of 
price  would  cause,  either  from  a  regard  to  their  own  interest, 
or  by  formal  or  informal  agreement  with  other  producers,  to 
suspend  production  for  fear  of  further  spoiling  the  market. 
This  then  is  the  interpretation  of  marginal  supply  price  for 
short  periods;  for  which  it  rises  with  every  increase  in  the 
amount  that  has  to  be  produced. 

regards  short-normal  or  sub-normal  prices,  supply  means  broadly  what  can  be 
produced  with  the  existing  stoch  of  plant,  personal  and  impersonal  in  the 
given  time.  As  regards  (full)  normal  prices,  supjjly  means  what  can  be  pro- 
duced by  plant,  which  itself  can  be  remuneratively  produced  and  applied 
within  the  given  time.  While  lastly  there  are  secular  movements  of  normal 
price,  caused  by  the  gradual  growth  of  knowledge,  of  population  and  of  capital, 
and  the  changing  conditions  of  demand  and  supply  from  one  century  to  another. 


LONG   AND  SHOtlT  PERIODS.  2-l'l 

Appliances  for  production  are  of  many  difterent  kinds : 
they  include  land,  factories,  machines,  business  orgaidzations 
(including  even  such  as  a  house-letting  agency,  with  a  good 
connection  but  little  or  no  material  capital),  business  ability 
and  manual  skill.  The  owner  of  any  one  of  those  will  not 
generally  apply  it  to  produce  anything,  unless  he  expects  to 
gain  in  return  at  least  enough  to  compensate  him  for  the 
immediate  and  special  trouble,  sacrifice  and  outlay  involved 
in  this  particular  operation,  and  which  he  could  escape  by 
declining  to  undertake  it.  Any  excess  which  he  gets  above 
this  prime  cost  has  obviously  some  prima  facie  resemblance 
to  that  excess  value  of  the  produce  of  land  over  the  direct 
cost  of  raising  it  which  is  the  basis  of  rent  as  ordinarily 
understood;  and  we  are  therefore  justified  in  calling  it  a 
Quasi-rent. 

Now  in  short  periods  the  supply  of  specialized  skill  and 
ability,  of  suitable  machinery  and  other  material  capital,  and 
of  the  appropriate  industrial  organization  has  not  time  to  be 
fully  adapted  to  demand;  but  the  producers  have  to  adjust 
their  supply  to  the  demand  as  best  they  can  with  the  appli- 
ances already  at  their  disposal.     On  the  one  hand  _,         ui  *t, 

•^       _  ^^  ^  Meanwhile  the 

there  is  not  time  materially  to  increase  those  income  derived 
appliances  if  the  supply  of  them  is  deficient ;  and  p^n^ces  a^^^" 
on  the  other,  if  the  supply  is  excessive,  some  of  fordsaQuasi- 
them  must  remain  imperfectly  employed,  since 
there  is  not  time  for  the  supply  to  be  much  reduced  by  gradual 
decay,  and  by  conversion  to  other  uses.  The  particular  income 
derived  from  them  during  those  times,  does  not  for  the  time 
affect  perceptibly  the  supply,  nor  therefore  the  price,  of  the 
commodities  produced  by  them  :  it  is  a  surplus  of  total  receipts 
over  Prime  (money)  cost,  governed  by  the  more  or  less 
accidental  relations  of  demand  and  supply  for  that  time ;  but 
unless  it  is  sufficient  to  cover  in  the  long  run  the  Supplementary 
costs  of  the  business,  production  will  gradually  fall  off.  In 
this  way  the  short  period  supply  price  is  governed  in  the  back- 

M.  16 


242  BOOK   V.    CH.   V.   §   4. 

ground  by  causes  ranging  over  a  long  period ;  and  the  fear  of 
"spoiling  the  market"  often  makes  those  causes  act  more 
promptly  than  they  otherwise  would. 

In  long  periods  all  investments  of  capital  and  effort  in 
providing  the  material  plant  and  the  organization  of  a  busi- 
ness, and  in  acquiring  trade  knowledge,  and  specialized  ability 
have  time  to  be  adjusted  to  the  incomes,  which  are  expected 
to  be  earned  by  them :  and  the  estimates  of  those  incomes 
therefore  directly  govern  supply  and  are  the  true  long  period 
normal  supply  price  of  the  commodities  produced  \ 

1  In  Principles  V.  vm.,  ix.  the  points  raised  in  the  last  two  paragraphs  of 
the  text  are  developed  in  a  long  and  very  difficult  argument;  the  chief 
result  of  which  is  this : — Kicardo's  doctrine  as  to  the  relation  in  which  Value 
stands  to  Kent  proper  can  be  extended  to  the  temporary  relation  in  which 
value  stands  to  the  incomes  yielded  by  appliances  for  production  which  man 
has  made ;  and  especially  those  of  them  which  are  durable,  and  of  which  the 
supply  cannot  be  increased  rapidly. 

The  resemblance  between  Quasi-rents  and  true  rents  is  real  and  important, 
but  it  is  limited  by  the  fact  that,  while  the  excess  of  the  gross  receipts  which 
a  producer  gets  for  any  of  his  commodities  over  their  prime  cost  (that  is, 
over  that  extra  cost  which  he  incurs  in  order  to  produce  those  particular 
things,  and  which  he  could  have  escaped  if  he  had  not  produced  them)  is  a 
temporary  surplus  (or  Quasi-rent) ;  yet  in  the  long  nm  all  these  temporary 
surpluses  are  needed  to  cover  the  supplementary  costs  of  the  business.  They 
do  not  therefore,  in  the  long  run,  yield  a  true  surplus,  corresponding  to  the 
permanent  surplus  which  the  possession  of  fertile  land  is  commonly  supposed 
to  yield,  and  in  some  cases  does  yield,  to  its  owner. 

The  question  how  great  a  part  of  his  expenses  he  must  enter  in  these 
prime  costs,  and  how  much  he  must  deduct  from  his  selhng  price  before  he 
calculates  his  surplus,  depends  on  how  far  he  looks  ahead;  or  in  other  words, 
on  whether  he  is  making  his  calculations  for  a  long  period  or  only  for  a  short. 

If  he  is  looking  only  a  little  way  ahead,  and  is  not  afraid  of  spoiling  his 
market ;  if  he  has  got  all  his  apparatus  ready  and  standing  idle ;  then  a  new 
order  coming  in  will  give  him  a  surplus  over  its  direct  cost  to  him,  consisting 
of  the  whole  price  which  he  receives  after  deducting  the  special  outlay  for  raw 
material,  for  extra  wages,  and  for  wear  and  tear  of  plant  involved  in  filling  up 
the  order.  But  suppose  him  to  be  lookuig  far  ahead,  and  proposing  to  extend 
his  factory  so  as  to  do  an  increased  business ;  he  does  not  then  reckon  any 
price  as  affording  him  a  real  surplus,  unless,  after  allowing  for  all  risks,  it 
will  yield  him,  in  addition  to  prime  costs,  sufficient  to  give  normal  profits  on 
all  his  outlay  for  material,  plant,  and  for  building  up  his  business  connection, 
together  with  charges  for  depreciation  through  the  lapse  of  time,  and  for  office 
and  other  general  expenses  which  are  not  reckoned  in  the  prune,  or  special 
and  direct,  costs  of  filling  up  any  particular  order. 


LONG  AND  SHORT  PERIODS.  243 

The  conditions  which  govern  the  amount  of  this  surplus  and  its  relations 
to  value  depend  not  so  much  on  the  nature  of  the  industry  as  on  the  period  of 
time  for  which  the  calculation  is  made.  But  a  short  period  for  one  class  of 
industry  may  be  a  long  one  for  another,  just  as  the  age  of  youth  for  a  dog  is 
shorter  than  for  an  elephant. 

Thus  when  we  are  taking  a  broad  view  of  normal  value  extending  over  a 
very  long  period  of  time,  when  we  are  investigating  the  causes  which  detennine 
normal  value  "in  the  long  run,"  when  we  are  tracing  the  "ultimate"  effects  of 
economic  causes,  then  the  income  that  is  derived  from  capital  in  these  forms 
enters  into  the  payments  by  which  the  expenses  of  production  of  the  com- 
modity in  question  have  to  be  covered,  and  it  directly  controls  the  action  of 
the  producers  who  are  on  the  margin  of  doubt  as  to  whether  to  increase  the 
means  of  production  or  not.  But,  on  the  other  hand,  when  we  are  considering 
the  causes  which  determine  normal  prices  for  a  period  which  is  short  relatively 
to  that  required  for  largely  increasing  the  supply  of  those  appliances  for  pro- 
duction, then  their  influence  on  value  is  chiefly  indirect  and  more  or  less 
similar  to  that  exerted  by  the  free  gifts  of  nature.  The  shorter  the  period 
which  we  are  considering,  and  the  slower  the  process  of  production  of  those 
appliances,  the  less  part  wiU  variations  in  the  income  derived  from  them  play 
in  checking  or  increasing  the  supply  of  the  commodity  produced  by  them,  and 
in  raising  or  lowering  its  supply  price;  and  the  more  nearly  true  will  it  be 
that,  for  the  period  under  discussion,  the  Net  income  to  be  derived  from  them 
is  to  be  regarded  as  a  Producer's  Surplus  or  Quasi-rent.  And  thus  in  passing 
from  the  free  gifts  of  nature  through  the  more  permanent  improvements  in 
the  soil,  to  less  permanent  improvements,  to  farm  and  factory  buildings,  to 
steam-engines,  &c.,  and  finally  to  the  less  durable  and  less  slowly  made  imple- 
ments, we  find  a  continuous  series. 

This  chapter  is  much  abbreviated  from  Principles  V.  v. ;  several  minor 
difi&culties,  chiefly  of  an  abstract  character,  being  here  ignored. 


16—2 


CHAPTER  VI. 

JOINT    AND    COMPOSITE    DEMAND:     JOINT    AND    COMPOSITE 

SUPPLY. 

§  1.     The  demand  for  the  things  used  for  making  other 
.  things,   and    their   factors   of  production,    is    in- 

mand  and  joint  direct;    it  is  DERIVED  from  the  demand  for  the 
eman  .  things    tov/ards   the   production   of   which   they 

contribute;  or,  in  other  words,  the  demands  for  all  the 
various  factors  of  production  of  a  finished  commodity  are 
joined  together  in  the  joint  demand  for  it.  Thus  the  demand 
for  beer  is  direct,  and  is  a  joint  demand  for  hops,  malt, 
brewers'  labour,  and  the  other  factors  of  production  of  beer : 
and  the  demand  for  any  one  of  them  is  an  indirect  demand 
derived  from  that  for  beer.  Again  there  is  a  direct  demand 
for  new  houses ;  and  from  this  there  arises  a  joint  demand  for 
the  labour  of  all  the  various  building  trades,  and  for  bricks, 
stone,  wood,  etc.,  which  are  factors  of  production  of  building 
work  of  all  kinds,  or  as  we  may  say  for  shortness,  of  new 
houses.  But  the  demand  for  any  one  of  these,  as  for  instance 
the  labour  of  plasterers,  is  only  an  indirect,  or  Derived, 
demand. 

Let  us  take  an  illustration  from  a  class  of  events  that 
Illustration  ^^®  ^^  frequent  occurrence  in  the  labour  market ; 
taken  from  a      ^nd   suppose   that   the   supply  and  demand  for 

labour  dispute     ,,,.,.  .  ......  .  ., 

in  the  build-  buildmg  being  m  equilibrium,  there  is  a  strike 

ing  trade.  ^^  ^Yiq  part  of   One  group  of   workers,  say  the 

plasterers,  or  that  there  is  some   other   disturbance   to   the 

supply  of  plasterers'  labour.     In  order  to  make  a  separate- 


JOINT  AND   COMPOSITE   DEMAND   AND   SUPPLY.      245 

study  of  the  demand  for  that  factor,  we  suppose  firstly 
that  the  general  conditions  of  the  demand  for  new  houses 
remain  unchanged  (that  is,  that  the  demand  schedule  for 
new  houses  remains  valid);  and  secondly  we  assume  that 
there  is  no  change  in  the  general  conditions  of  supply  of 
the  other  factors,  two  of  which  are  of  course  the  business 
faculties  and  the  business  organizations  of  the  master  builders 
(that  is,  we  assume  that  their  supply  schedules  also  remain 
valid).  Then  a  temporary  check  to  the  supply  of  plasterers' 
labour  will  cause  a  proportionate  check  to  the  amount  of 
building:  the  demand  price  for  the  diminished  number  of 
houses  will  be  a  little  higher  than  before;  and  the  supply 
prices  for  the  other  factors  of  production  will  not  be  greater 
than  before.  Thus  new  houses  can  now  be  sold  at  prices  which 
exceed  by  a  good  margin  the  sum  of  the  prices  at  which  these 
other  requisites  for  the  production  of  houses  can  be  bought ; 
and  that  margin  gives  the  limit  to  the  possible  rise  of  the  price 
that  will  be  offered  for  plasterers'  labour,  and  on  the  supposition 
that  plasterers'  labour  is  indispensable'. 

§  2.  It  is  however  important  to  remember  that  if  the 
supply  of  one  factor  is  disturbed,  the  supply  of  others  is  likely 
to  be  disturbed  also.  In  particular,  when  the  factor  of  which 
the  supply  is  disturbed  is  one  class  of  labour,  as  that  of  the 
plasterers,  t?ie  employers'  earnings  generally  act  as  a  buffer. 
That  is  to  say,  the  loss  falls  in  the  first  instance  on  them ; 
but  by  discharging  some  of  their  workmen  and  lowering  the 
wages  of  others,  they  ultimately  distribute  a  great  part  of  it 
among  the  other  factors  of  production. 

We  may  note  the  general  conditions,  under  which  a  check 

1  The  different  amounts  of  this  margin,  corresponding  to  different  checks 
to  the  supply  of  plasterers'  labour,  are  determined  by  the  general  rule  that, — 

The  demand  price  for  any  thing  used  in  producing  a  commodity  is,  for  each 
separate  amount  of  the  commodity,  limited  by  the  excess  of  the  price  at  which 
that  amount  of  the  commodity  can  find  purchasers,  over  the  sum  of  the  prices 
at  which  the  corresponding  supplies  of  the  other  things  needed  for  making  it 
will  be  forthcoming. 

This  and  several  other  results  of  the  present  chapter  can  be  most  clearly 
apprehended  by  the  aid  of  diagrams.    See  Principles  V.  vi. 


246  BOOK  V.   CH.  VI.  §§  %  3. 

to  the  supply  of  a  thing  that  is  wanted  not  for  direct  use, 
Conditions  but  as  a  factor  of  production,  may  cause  a  very 
a'checiTto'^^  great  rise  in  its  price.  The  first  condition  is 
supply  may  that  the  factor  itself  should  be  essential,  or 
price  of  a  factor  nearly  essential  to  the  production  of  the  com- 
of  production,  modity,  no  good  substitute  being  available  at  a 
moderate  price. 

The -second  condition  is  that  the  commodity  in  the  pro- 
duction of  which  it  is  a  necessary  factor,  should  be  one  for 
which  the  demand  is  stiff  and  inelastic;  so  that  a  check  to 
its  supply  will  cause  consumers  to  ofier  a  much  increased 
price  for  it  rather  than  go  without  it;  and  this  of  course 
includes  the  condition  that  no  good  substitutes  for  the  com- 
modity are  available  at  a  price  but  little  higher  than  its 
equilibrium  price.  If  the  check  to  house  building  raises  the 
price  of  houses  very  much,  builders,  anxious  to  secure  the 
exceptional  profits,  will  bid  against  one  another  for  such 
plasterers'  labour  as  there  is  in  the  market. 

The  third  condition  is  that  only  a  small  part  of  the 
expenses  of  production  of  the  commodity  should  consist  of 
the  price  of  this  factor.  Since  the  plasterers'  wages  are  but 
a  small  part  of  the  total  expenses  of  building  a  house,  a  rise 
of  even  50  per  cent,  in  them  would  add  but  a  very  small 
percentage  to  the  expenses  of  production  of  a  house  and  would 
check  demand  but  little. 

The  fourth  condition  is  that  even  a  small  check  to  the 
amount  demanded  should  cause  a  considerable  fall  in  the 
supply  prices  of  other  factors  of  production;  for  that  will 
increase  the  margin  available  for  paying  a  high  price  for  this 
one.  If,  for  instance,  bricklayers  and  other  classes  of  work- 
men, or  the  employers  themselves  cannot  easily  find  other 
things  to  do,  and  cannot  afford  to  remain  idle,  they  may  be 
willing  to  work  for  much  lower  earnings  than  before,  and  this 
will  increase  the  margin  available  for  paying  higher  wages  to 
plasterers. 


JOINT  AND  COMPOSITE  DEMAND  AND   SUPPLY.       247 

The  rise  in  plasterers'  wages  would  be  checked  if  it  were 
possible  either  to  avoid  the  use  of  plaster,  or  to 
get  the  work  done  tolerably  well  and  at  a  mode-  influence  of 
rate  price  by  people  outside  the  plasterers'  trade.  ^^^  ^^w  of 

rr,,  T  /  rf^       .        .  ,  i  i  Substitution. 

The  Law  or  Substitution  here  as  elsewhere 
exercises  a  subduing  influence  on  forces  which  might  otherwise 
lead  to  startling  results.  The  tyranny  which  one  factor  of 
production  of  a  commodity  might  in  some  cases  exercise  over 
the  other  factors  through  the  Law  of  Derived  Demand  is 
tempered  by  the  Law  of  Substitution. 

The  relations  between  plasterers,  bricklayers,  &g.  are 
representative  of  much  that  is  both  instructive  and  romantic 
in  the  history  of  alliances  and  conflicts  between  trades  unions 
in  allied  trades.  But  the  most  numerous  instances  of  Joint 
demand  are  those  of  the  demand  for  a  raw  material  and  the 
operatives  who  work  it  upj  as  for  instance  cotton  or  jute  or 
iron  or  copper,  and  those  who  work  up  these  several  materials. 
Again,  the  relative  prices  of  different  articles  of  food  vary  a 
good  deal  with  the  supply  of  skilled  cooks'  labour ;  thus  for 
instance  many  kinds  of  meat  and  many  parts  of  vegetables 
which  are  almost  valueless  in  America,  where  skilled  cooks 
are  rare  and  expensive,  have  a  good  value  in  France  where  the 
art  of  cooking  is  widely  diffused. 

§  3.  We  have  already*  noticed  how  the  demand  for  any 
commodity  is  made  up  or  compounded  of  the  composite 
demands  of  the  different  individuals  who  may  demand, 
need  it.  But  we  now  may  extend  this  notion  of  composite 
DEMAND  to  factors  of  production.  Nearly  every  raw  material 
and  nearly  every  kind  of  labour  is  applied  in  many  different 
branches  of  industry,  and  contributes  to  the  production  of  a 
great  variety  of  commodities ;  and  the  total  demand  for  it  is 
the  sum  of  the  derived  demands  for  it,  in  each  of  these  several 
uses. 

1  See  Book  in.  Ch.  iii.,  iv. 


248  BOOK  V.  CH.  VI.  §§  4,  5. 

§  4.  We  may  now  pass  to  consider  the  case  of  things 
which  have  a  joint  supply.  It  corresponds  to 
that  of  things  which  have  a  joint  demand,  and  it 
may  be  discussed  almost  in  the  same  words,  by  merely  sub- 
stituting "demand"  for  "supply,"  and  vice  versd.  When  two 
or  more  things  are  produced  by  one  and  the  same  process; 
so  that  the  expenses  of  producing  them  all  together  are  not 
(greater  than  the  expenses  of  producing  one  of  them  alone 
would  be ;  then  these  things  are  called  joint  products.  Thus 
gas  and  coke  are  joint  products ;  and  so  are  wheat  and  straw, 
and  again  beef  and  kides.  The  prices  of  the  gas  and  the  coke 
that  are  got  from  a  ton  of  coal,  must  together  be  enough  to 
cover  their  joint  expenses  of  production.  If  the  demand  for 
gas  rises,  more  coke  will  be  produced,  and  its  price  must  fall, 
so  that  the  increased  supply  may  be  taken  off  the  market. 
The  rise  in  the  price  of  gas  must  be  sufficient  to  cover  this  fall 
in  the  price  of  coke,  and  also  to  cover  the  increase,  if  there  is 
any,  in  the  joint  expenses  of  production  of  gas  and  coke. 
Again,  since  the  repeal  of  the  Corn  Laws  much  of  the  wheat 
consumed  in  England  has  been  imported,  of  course  without 
any  straw.  This  has  caused  a  scarcity  and  a  consequent  rise 
in  the  price  of  straw,  and  the  farmer  who  grows  corn  looks  to 
the  straw  for  a  great  part  of  the  value  of  the  crop.  The  value 
of  straw  then  is  high  in  countries  which  import  corn,  and  low 
in  those  which  export  corn.  In  the  same  way  the  price  of 
mutton  in  the  wool-producing  districts  of  Australia  was  at  one 
time  very  low.  The  wool  was  exported,  the  meat  had  to  be 
consumed  at  home ;  and  as  there  was  no  great  demand  for  it, 
the  price  of  the  wool  had  to  defray  almost  the  whole  of  the 
joint  expenses  of  production  of  the  wool  and  the  meat. 
Afterwards  the  low  price  of  meat  gave  a  stimulus  to  the  trade 
of  preserving  meat  for  exportation,  and  now  its  price  in 
Australia  is  higher  ^ 

1  There  are  however  very  few  cases  of  joint  products  the  cost  of  pro- 
duction of  both  of  which  together  is  exactly  the  same  as  that  of  one  of  them 


JOINT  AND  COMPOSITE   DEMAND  AND  SUPPLY.       249 

§  5.  We  may  pass  to  the  problem  of  composite  supply 
which  is  analogous  to  that  of  composite  demand,  composite 
When  a  thing  has  several  sources  of  production  Supply, 
its  total  supply  at  any  price  is  made  up  or  compounded  of  the 
supplies  at  that  price  from  all  the  several  sources.  Beef  and 
mutton  may  be  treated  as  varieties  of  one  commodity  for 
many  purposes;  but  they  must  be  treated  as  separate  for 
others,  as  for  instance  for  those  in  which  the  question  of  the 
supply  of  wool  enters.* 

In  real  life  there  are  very  few  things  the  value  of  which 
can  be  determined  without  taking  some  account  of  all  the 
four  chief  problems  which  have  been  discussed  in  this  chapter. 
We  often  find  connections  between  the  prices  of  commodities 
which  at  first  seem  far  apart. 

Thus  when  charcoal  was  generally  used  in  making  iron, 
the  price  of  leather  depended  in  some  measure  on  that  of 
iron ;  and  the  tanners  petitioned  for  the  exclusion  of  fcH'eign 
iron  in  order  that  the  demand  on  the  part  of  English  iron 
smelters  for  oak  charcoal  might  cause  the  production  of 
English  oak  to  be  kept  up,  and  thus  prevent  oak  bark  from 
becoming  dear.  Again,  the  development  of  railways  and 
other  means  of  communication  for  the  benefit  of  one  trade, 
as  for  instance  wheat  growing  in  some  parts  of  America  and 
silver  mining  in  others,  greatly  lowers  some  of  the  chief 
expenses  of  production  of  nearly  every  other  product  of 
those  districts.  This  brings  us  to  the  subject  of  the  next 
Chapter. 

alone.  So  long  as  any  product  of  a  business  has  a  market  value,  it  is  almost 
sure  to  have  devoted  to  it  some  special  care  and  expense,  which  would  be 
diminished,  or  dispensed  with  if  the  demand  for  that  product  were  to  fall  very 
much.  Thus,  for  instance,  if  straw  were  valueless,  farmers  would  exert  them- 
selves more  than  they  do  to  make  the  ear  bear  as  large  a  proportion  as  possible 
to  the  stalk.     See  Principles  V.  vi.  4. 

1  Commodities  which  are  capable  of  satisfying  exactly  the  same  demand  in 
the  same  way  can  seldom  remain  permanently  in  the  market  together  if  any  of 
them  obeys  the  Law  of  Increasing  Return.    See  Principles  V.  vi.  5. 


L 


CHAPTER  VII. 

PRIME  AND  TOTAL  COST  IN  RELATION  TO  JOINT  PRO- 
DUCTS. COST  OF  MARKETING.  INSURANCE  AGAINST 
RISK. 

§  1.     We  may  now  return  to  the  consideration  of  Prime 

and  Supplementary  Costs,  with  special  reference 

Sthe"oinTpro!  *^  *^®  proper  distribution  of  the  latter  between 

ducts    of    the  the  Joint  products  of  a  business.     For  instance 

same  business.    ,,  ^  .  ■,  ,  j*         ji  p 

the  shipowner  has  to  apportion  the  expenses  or 
his  ship  between  heavy  goods  and  goods  that  are  bulky  but 
not  heavy.  He  tries,  as  far  as  may  be,  to  get  a  mixed  cargo 
of  both  kinds ;  and  an  important  element  in  the  struggle  for 
existence  of  rival  ports  is  the  disadvantage  under  which  those 
ports  lie  which  are  able  to  offer  a  cargo  only  of  bulky  or  only 
of  heavy  goods  :  while  a  port  whose  chief  exports  are  weighty 
but  not  bulky,  attracts  to  its  neighbourhood  industries  which 
make  for  export  goods  that  can  be  shipped  from  it  at  low 
freights. 

From  the  expenses  of  transport  we  pass  easily  to  those  of 
^    ,  .  marketing.     Some  kinds  of  goods  are  easily  mar- 

Difficulties    as  ="  i    i-  i  i 

to  the  expenses  kctcd  ;  there  is  a  steady  demand  for  them,  and 
of  marketing.  .^  .^  always  Safe  to  make  them  for  stock.  But 
for  that  very  reason  competition  cuts  their  price  "  very  fine," 
and  does  not  allow  a  large  margin  above  the  direct  cost  of 
making  them.  Sometimes  the  tasks  of  making  and  selling 
them  can  be  rendered  almost  automatic,  so  as  to  require  very 
little  to  be  charged  on  their  account  under  the  heads  of  the 
expenses  of  management  and  marketing.     But  in  practice  it  is 


PRIME  AND  TOTAL  COST  OF  JOINT  PRODUCTS.      251 

not  uncommon  to  charge  such  goods  with  even  less  than  the 
small  share  that  would  properly  fall  to  them,  and  to  use  them 
as  a  means  of  obtaining  and  maintaining  a  business  connection, 
that  will  facilitate  the  marketing  of  other  classes  of  goods,  the 
production  of  which  cannot  so  well  be  reduced  to  routine ;  for 
as  to  these  there  is  not  so  close  a  competition.  Manufacturers, 
especially  in  trades  connected  with  furniture  and  dress,  and 
retailers  in  almost  all  trades,  frequently  find  it  best  to  use 
certain  of  their  goods  as  a  means  of  advertising  others,  and  to 
charge  the  first  with  less  and  the  second  with  more  than  their 
proportionate  share  of  Supplementary  expenses.  In  the  former 
class  they  put  those  goods  which  are  so  uniform  in  character 
and  so  largely  consumed  that  nearly  all  purchasers  know  their 
value  well,  in  the  second  those  with  regard  to  which  pur- 
chasers think  more  of  consulting  their  fancy  than  of  buying 
at  the  lowest  possible  price. 

Economic  progress  is  constantly  offering  new  facilities  for 
marketing  goods  at  a  distance :  it  not  only  lowers  Local  facilities 
cost  of  carriage,  but  what  is  often  more  import-  ^°^  marketing, 
ant,  it  enables  producers  and  consumers  in  distant  places  to 
get  in  touch  with  one  another.  In  spite  of  this,  the  advan- 
tages of  the  producer  who  lives  on  the  spot  are  very  great  in 
many  trades ;  they  often  enable  him  to  hold  his  own  against 
competitors  at  a  distance  whose  methods  of  production  are 
more  economical.  He  can  sell  in  his  own  neighbourhood  as 
cheaply  as  they  can,  because  though  the  Prime  cost  is  greater 
for  his  goods  than  for  theirs,  he  escapes  much  of  the  Supple- 
mentary cost  which  they  incur  for  marketing.  But  time  is  on 
the  side  of  the  more  economic  methods  of  production ;  and  his 
distant  competitors  will  gradually  get  a  stronger  footing  in 
the  place,  unless  he  or  some  new  man  adopts  their  improved 
methods. 

A  great  part  of  these  expenses  of  marketing  results  from 
the  risk  that  a  thing  preparing  for  a  certain  market  will  not 
find  the  expected  sale  there.     But  it  still  remains  to  make  a 


252  BOOK  V.  CH.  VII.   §  2. 

closer  study  of  the  relation  in  which  Insurance  against  the 
risks  of  a  business  stands  to  the  supply  price  of  any  particular 
commodity  produced  in  it. 

§  2.  The  manufacturer  and  the  trader  commonly  insure 
Insurance  against  injury  by  fire  and  loss  at  sea;  and  the 

against  risk,  premiums  which  they  pay  are  among  the  general 
expenses,  a  share  of  which  has  to  be  added  to  the  Prime  cost 
in  order  to  determine  the  Total  cost  of  their  goods.  But  the 
greater  part  of  business  risks  are  so  inseparably  connected 
with  the  general  management  of  the  business  that  an  insu- 
rance company  which  undertook  them  would  really  make  itself 
responsible  for  the  business :  and  in  consequence  every  firm 
has  to  act  as  its  own  insurance  office  with  regard  to  them. 
The  charges  to  which  it  is  put  under  this  head  are  part  of  its 
general  expenses,  and  a  share  of  them  has  to  be  added  to  the 
Prime  cost  of  each  of  its  products. 

But  there  is  a  danger  of  allowing  for  these  risks  more  than 
once.  When  a  farmer  has  calculated  the  expenses  of  raising 
any  particular  crop  with  reference  to  an  average  year,  he 
must  not  count  in  addition  insurance  against  the  risk  that 
the  season  may  be  bad,  and  the  crop  a  failure :  for  in  taking 
an  average  year,  he  has  already  set  oS  the  chances  of 
exceptionally  good  and  bad  seasons  against  one  another. 
When  the  earnings  of  a  ferryman  have  been  calculated  on  the 
average  of  a  year,  allowance  has  already  been  made  for  the 
risk  that  he  may  sometimes  have  to  cross  the  stream  with  an 
empty  boat. 

When  a  manufacturer  has  taken  the  average  of  his  sales 
of  dress  materials  over  a  long  time,  and  based  his  future 
action  on  the  results  of  his  past  experience,  he  has  already 
allowed  for  the  risks  that  the  machinery  will  be  depreciated 
by  new  inventions  that  will  render  it  nearly  obsolete  and  that 
his  goods  will  be  depreciated  by  changes  in  fashion.  If  he 
were  to  allow  separately  for  insurance  against  these  risks,  he 
would  be  counting  the  same  thing  twice  over. 


INSURANCE  AGAINST  RISK.  253 

This  discussion  of  the  risks  of  trade  has  again  brought 
before  us  the  fact  that  the  value  of  a  thing,  though  it  tends 
to  equal  its  normal  (money)  cost  of  production,  does  not 
coincide  with  it  at  any  particular  time,  save  by  accident. 
The  value  in  use  of  a  bell  with  a  flaw  in  it  is  very  little ;  it 
can  be  used  only  as  old  metal  and  therefore  its  price  is  only 
that  of  the  old  metal  in  it.  When  it  was  being  cast  the 
same  trouble  and  expense  were  incurred  for  it  as  for  other 
bells  which  turned  out  sound.  Its  Expenses  of  production 
were  the  same  as  those  of  sound  bells :  but  they  have  great 
value  in  use  and  are  therefore  sold  at  a  high  price.  The  price 
of  each  particular  bell  is  limited  by  its  value  in  use :  what 
the  Law  of  Normal  Value  states  is  that  the  price  of  cracked 
bells  and  sound  bells  together  must  in  the  long  run  cover  the 
expenses  of  making  bells  \ 

1  Carey  suggested  that  we  should  speak  of  value  in  relation  to  (money)  cost 
of  Reproduction  instead  of  in  relation  to  cost  of  production.  But  normal  cost 
of  production  and  normal  cost  of  reproduction  are  convertible  terms ;  and  no 
real  change  is  made  by  saying  that  the  normal  value  of  a  thing  tends  to  equal 
its  normal  (money)  cost  of  reproduction  instead  of  its  normal  cost  of  pro- 
duction. The  former  phrase  is  less  simple  than  the  latter,  but  means  the  same 
thing.  There  are  indeed  a  few  cases  in  which  the  market  value  of  a  thing  is 
nearer  its  cost  of  reproduction  than  the  cost  that  was  actually  incurred  in 
producing  that  particular  thing;  but,  as  a  rule  cost  of  reproduction  exerts 
little  direct  influence  on  value,  except  when  purchasers  can  conveniently  wait 
for  the  production  of  new  supplies. 

There  is  no  connection  between  cost  of  reproduction  and  price  in  the  cases 
of  food  in  a  beleaguered  city,  of  quinine  the  supply  of  which  has  run  short  in 
a  fever-stricken  island,  of  a  picture  by  Raphael,  of  a  book  that  nobody  cares  to 
read,  of  an  armour-clad  shij)  of  obsolete  pattern,  of  fish  when  the  market  is 
glutted,  of  fish  when  the  market  is  nearly  empty,  of  a  dress  material  that  has 
gone  out  of  fashion,  or  of  a  house  in  a  deserted  mining  village.  Compare 
above,  Book  v.  Ch.  iii.  §  6. 

The  present  chapter  is  much  compressed  from  the  corresponding  chapter 
of  the  Princiiiles. 


CHAPTER   VIII. 

CHANGES   OF   DEMAND   AND   SUPPLY.      MONOPOLIES ^ 

§  1.  There  remains  but  little  of  the  general  theory  of 
Equilibrium  of  demand  and  supply,  which  can  be  treated 
simply  and  is  needed  for  the  broader  practical  issues  of 
economics ;  and  what  there  is,  may  be  classed  under  the  head 
of  changes  of  normal  demand  and  supply  and  under  that  of 
monopolies. 

Firstly  as  to  the  mutual  influences  which  changes  in  demand 
Effects  of  an  and  Supply,  exert  on  one  another.  A  sudden 
normarde-  increase  in  the  demand  for  anything  will  raise  its 
mand  on  price,  market  price  j  but  whether  the  permanent  effect 
of  an  increase  of  normal  demand  for  it  will  be  to  raise  or 
lower  its  price  depends  on  whether  it  obeys  the  Law  of 
Diminishing  or  Increasing  Return.     In  the  former  case  the 

1  The  present  chapter  is  a  sketch  in  rough  outline  of  the  main  inquiries 
in  Principles,  V.  xii.  xiii. — chapters  which  deal  with  some  rather  difficult 
problems  by  aid  of  diagrams.  Chapters  viii.,  ix.,  and  x.,  of  the  Principles, 
Book  v.,  discuss  in  detail  Eent  and  Quasi-rent  in  relation  to  Cost  of  pro- 
duction: their  general  scope  has  been  already  indicated  in  the  notes  at  the 
end  of  the  second  and  last  sections  of  Ch.  iii.  of  this  Book.  But  nothing  has 
yet  been  said  of  Principles  V.  xi.  That  is  occupied  with  the  following  two 
questions.  Firstly: — How  far  can  we  speak  of  the  average  expenses  of 
production  of  commodities,  part  of  which  are  made  by  machinery  that  was 
itself  made  long  ago,  so  that  its  present  capital  value  and  therefore  the  charges 
to  be  allowed  for  its  use  stand  in  no  direct  relation  to  its  own  cost  of  production? 
Secondly :  In  what  sense  can  there  be  a  stable  equilibrium  between  demand 
and  supply  price  for  a  commodity  which  obeys  the  Law  of  Increasing  Keturn  ? 
The  answer  to  this  second  and  more  important  question  is  to  be  found  in 
a  study  of  the  expenses  of  production  (and  marketing)  by  that  Kepresentative 
firm  to  which  reference  has  already  been  made  (see  above  Book  IV.  ch.  jciii. 
§  1,  and  Book  V.  ch.  iii.,  §  4). 


CHANGES   OF   DEMAND  AND   SUPPLY.      MONOPOLIES.      255 

increased  supply   can    be    raised    only    at   a  more  than  pro- 
portionate increase  of  cost,  and  the  price  there-  The  cases  of 
fore  must  be  permanently   higher    than   before.   Diminfshhi^"'^ 
But  in  the  latter  case  the  increased  production  Return, 
will    gradually    develop    new    economies;    and    the    normal 
expenses  of  production,  and  therefore  the  normal  value  of  the 
commodity,  will  be  lower  than  before.     In  the  former  case  the 
advent   of    new   purchasers    injures    others    by  Effects  on 
making  them  buy  at  a  higher  price;  and  lowering  Consumers' 
the    Consumers'    Rent    (See    above.     Book    iii. 
ch.  VI.)  which  they  derive  from  the  commodity.     In  the  latter 
case  it  benefits  others  by  increasing  their  Consumers'  Rent. 
And  from  this  it  appears  that  the  public  wellbeing  might 
conceivably  be  furthered  by  promoting  the  production  and 
consumption  of   things  in  regard  to  which   the  Law  of   In- 
creasing Return  acts  with  especial  forced 

This  result  is  important  chiefly  because  it  is  the  leading 
type  of  a  great  many  cases  in  which  the  private  interests  of 
individuals,  even  when  competing  freely,  lead  them  into 
courses  that  are  not  the  best  that  could  be  contrived  in  the 
public  interest.  And  this  opposition  between  public  and 
private  interests,  becomes  more  clearly  marked  in  the  case  of 
monopolies. 

§  2.     It  is  indeed  a  familiar  commonplace  that  the  owner 
of  a  monopoly  is  tempted  to  limit  his  supply  so 
as  to  raise  his  price  very  high,  and  reap  benefits  poly  price  is 
for  himself   at  the  expense  of  the  public.     His  ^^^^''^'''^^^ 
gains  are  the  aggregate  excess  of  his  sales  over  his  outgoings ; 
and  his  immediate  interest  is  so  to  fix  his  price  (and  therefore 
the  amount  of   his  sales)  as  to  make  this  sum  as  large  as 
possible.     If  a  small  supply  can  be  sold  at  a  very  much  higher 
price  than  a  large  one,  his  supply  will  generally  be  small ;  and 


1  This  is  argued  at  some  length,  and  with  the  aid   of    diagrammatic 
illustrations  in  Principles,  V.  xii. 


256  BOOK  V.   CH.  VIII.  §  2. 

the  Consumers'  Rent  that  the  public  derive  from  the  com- 
modity will  be  very  small. 

If  however  an  increase  in  supply  would  not  raise  his 
aggregate  expenses  nearly  in  proportion,  if  the  commodity  is 
one  of  which  increased  quantities  can  be  sold  without  causing 
a  very  great  fall  in  price,  then  he  may  benefit  himself  a  little, 
even  directly,  by  increasing  his  production  a  great  deal  and 
lowering  his  price  a  little.  And  by  so  doing  he  will  benefit 
others  a  great  deal :  for  the  Consumers'  Rent  derived  from  his 
commodity  will  be  very  much  increased. 

Next  suppose  that  by  increasing  his  supply  he  will  lower 
A  small  loss  to  the  Selling  price  of  his  commodity  relatively 
the  Monopolist  j^q  ]^jg  outlay  for  producinej  it,  so  far  as  to  lessen 

may  cause  a  _  .  . 

great  Con-  his  net  income  by  a  little  but  only  by  a  little, 
sumers  gain,  g^pp^gg  f^j.  instance  that  he  stands  to  lose 
£2000  a  year  by  a  lowering  of  price  that  would  increase  by 
-£100,000  a  year  the  Consumers'  Rent  derived  from  his  com- 
modity ;  then  it  would  be  worth  while  for  the  community  to 
pay  him  a  sufficient^um  to  induce  him  to  make  the  change. 
^^^^FliTsucE  a  case  he  might  make  the  change  voluntarily, 
The  mono-  and  that  for  either  of  two  motives.  He  might 
lower  prices  hope  that  the  lower  price  would  gradually  extend 
the*^roXth^f°  *^®  consumption  of  his  commodity,  and  that  a 
his  business,  further  increase  of  sales  would  ere  long  bring  up 
his  net  revenue  to  its  old  level  or  beyond  it ;  even  if  the  in- 
creased scale  of  production  did  not  develop,  new  economies  of 
production,  in  addition  to  those  which  he  had  in  view  when 
he  calculated  that  the  change  would  cost  him  the  loss  of 
£2000  a  year. 

But  secondly  he  might  regard  the  well-being  of  the  con- 
orfrom  a  direct  sumers  as  not  altogether  indifferent  to  him. 
weifar^eoTcon-  Sometimes  the  owners  of  a  monopoly  are  them- 
sumers.  selves  directly  or  indirectly  the  chief  consumers 

of  its  products,  as  for  instance  when  a  local  railway  is  owned 
by  the  chief  landowners  in  the  neighbourhood ;  or  when  the 


CHANGES  OF   DEMAND  AND  SUPPLY.      MONOPOLIES.      257 

gas  supply  of  a  town  is  the  property  of  the  town  itself ;  and 
in  such  cases  it  would  always  be  a  wise  policy  to  sacrifice  a 
little  of  monopoly  revenue  in  order  to  obtain  a  great  increase 
of  Consumers'  Rent.  And  in  some  other  cases,  the  owners  of 
a  monopoly  will  take  a  price  that  affords  them  less  than  the 
greatest  net  revenue,  because  they  are  willing  to  sacrifice 
themselves  a  little  in  order  to  benefit  the  consumers  of  their 
goods  much.  There  are  few  more  pressing  studies  than  those 
of  the  relative  gains  and  losses  which  will  accrue  to  mono- 
polists and  the  public  severally  from  different  courses  of  action. 
The  problem  cannot  easily  be  clearly  defined  without  the  aid 
of  diagrams;  and  it  cannot  be  solved  for  practical  purposes 
without  fuller  and  more  exact  statistics  than  we  at  present 


1  The  problem  is  treated  at  length  by  the  aid  of  diagrams  in  Principles, 
V.  XIII. 


M.  17 


BOOK   YL 

VALUE, 

OR 

DISTRIBUTION   AND   EXCHANGE. 
CHAPTEU   I. 

PRELIMINARY   SURVEY   OF  DISTRIBUTION   AND   EXCHANGE. 

§  1.     The   simplest   account   of   the  causes  which  deter- 
The  Phy-  mine  the  supply  of   labour  and  capital  is  that 

siocrats.  given  by  the  French  economists  who  just  pre- 

ceded Adam  Smith,  and  it  is  based  upon  the  peculiar  circum- 
stances of  France  in  the  latter  half  of  last  century.  The 
taxes,  and  other  exactions  levied  from  the  French  peasant, 
were  then  limited  only  by  his  ability  to  pay ;  and  few  of  the 
labouring  classes  were  far  from  starvation.  So  the  Economists 
or  Physiocrats,  as  they  were  called,  assumed  for  the  sake  of 
simplicity,  that  there  was  a  natural  law  of  population  according 
to  which  the  wages  of  labour  were  kept  at  starvation  limit. 
And  they  assumed,  again  for  the  sake  of  simplicity,  that 
there  was  something  like  a  natural,  or  necessary  rate  of  profit, 
corresponding  in  some  measure  to  the  natural  rate  of  wages ; 
that  if  the  current  rate  exceeded  this  necessary  level,  capital 
would  grow  rapidly,  till  it  forced  down  the  rate  of  profit  to 
that  level ;  and  that,  if  the  current  rate  went  below  that  level, 
capital  would  shrink  quickly,  and  the  rate  would  be  forced 
upwards  again.  Wages  and  profits  being  thus  fixed  by 
natural  laws,  they  thought  that  the  natural  value  of  every- 


SURVEY  OF  DISTRIBUTION   AND   EXCHANGE.        259 

thing  was  determined  simply  as  the  sum  of  wages  and  profits 
required  to  remunerate  the  producers. 

Adam  Smith  saw  also  that  labour  and  capital  were  not  at 
the  verge  of  starvation  in  England,  as  they  were 


part  of   the  working  classes  were  sufficient  to  allow  much 
more   than   the   mere   necessaries  of  existence;   and  capital 
had  too  rich  and  safe  a  field  of  employment  there  to  be  likely 
to  go  out  of  existence,  or  to  emigrate.     He  even  insists  that 
the  liberal  reward  of  labour  "increases  the  industry  of  the     j 
common  people;"  that  "a  plentiful  subsistence  increases  the    / 
bodily  strength  of  the  labourer ;  and  the  comfortable  hope  of  / 
bettering  his  condition,  and  of  ending  his  days  perhaps  in  ease  • 
and  plenty,  animates  him  to  exert  that  strength  to  the  utmost. 
Where  wages  are  high,  accordingly,  we  shall  always  find  the 
workman  more  active,  diligent  and  expeditious,  than  where 
they  are  low ;  in  England,  for  example,  than  in  Scotland ;  in 
the  neighbourhood  of  great  towns  than  in  remote  country 
places." 

Malthus  again,  in  his  admirable  survey  of  the  course  of 
wages  in  England  from  the  thirteenth   to  the  Malthus  and 
eighteenth   centuries,    showed   how   their    mean  Ricardo, 
level  oscillated  from  century  to  century,   falling  sometimes 
down  to  about  half  a  peck  of  corn  a  day,  and  rising  sometimes 
up  to  a  peck  and  a  half  or  even,  in  the  fifteenth  century,  to 
about  two  pecks :    a  height  beyond  which  they  have  never 
passed  except  in  our  own  day ;    and  he  observed  that  "  an 
inferior  mode  of  living  may  be  a  cause  as  well  as  a  consequence    / 
of  poverty." 

It  must  however  be  admitted  that  neither  Adam  Smith 
nor  Malthus  laid  sufficient  stress  on  the  influence  which  habits 
of  living  exercise  on  the  efficiency,  and  therefore  on  the 
earning  power  of  the  labourer ;  and  that  they  sometimes  fell 
back  into  careless  ways  of  speaking  which  seemed  to  imply 
that  the  mean  level  of  the  wages  of  labour  are  fixed  by  an 

17—2 


260  BOOK  VI.  CH.  I.  §§  1,  2. 

iron  law  at  the  bare  necessaries  of  life.  And  Kicardo  was 
even  more  careless  in  this  respect. 

J.  S.  Mill  carried  further  the  good  work  of  Adam  Smith 
and  Malthus.  And  the  economists  of  our  own 
generation,  led  in  this  respect  by  General  Walker 
and  other  Americans,  have  begun  to  make  a  careful  study  of 
the  effects  that  high  wages  have  in  increasing  the^^jgj^iiisfipy 
not  only  of  those  who  receive  them,  but  also  of  their  children 
and  grand-children ;  and  have  shown  that  highly  paid  labour 
is  generally  efficient  and  therefore  not  dear  labour. 

§  2.  But  it  has  now  become  certain  that  the  problem  of 
^,         , ,  Distribution  is  much  more  difficult  than  it  was 

The  problem 

difficult:  thought  to  be  by  earlier  economists,  and  that  no 

niu'strations  solution  of  it  which  claims  to  be  simple  can  be 
needed.  ^j-ue.     Most  of  the  old  attempts  to  find  an  easy 

answer  to  it,  were  really  answers  to  the  imaginary  questions 
that  might  have  arisen  in  other  worlds  than  ours  in  which 
the  conditions  of  life  were  very  simple.  The  work  done  in 
answering  these  questions  was  not  wasted.  For  a  very  diffi- 
cult problem  can  best  be  solved  by  being  broken  up  into 
pieces :  and  each  of  these  simple  questions  contained  a  part 
of  the  great  and  difficult  problem  which  we  have  to  solve. 
Let  us  profit  by  this  experience  and  work  our  way  by  suc- 
cessive steps  in  the  remainder  of  this  chapter  towf^rrj-^  HP d or- 
standing  the  general  causes  which  govern  the  demand  for 
labour  and  capital  in  real  life. 

Xiet  us  begin  by  studying  the  influence  of  demand  on  the 
First  all  earnings   of   labour,   drawn   from   an  imaginary 

supposed  world  in  which  everyone  owns  the  capital  that 

equal  aiTd  ^  ^^^^  ^^^  ^^  ^^^  labour  j  SO  that  the  problem  of 
interchange-      q^q  relations  of  Capital  and  labour  does  not  arise 

able :  popula-      ..^1-1  •      i 

tion  station-  in  it.  That  IS,  let  US  suppose  but  little  capital  to 
^^^'  be  used;  while  everyone  owns  whatever  capital  he 

does  use,  and  the  gifts  of  nature  are  so  abundant  that  they  are 
free  and  unappropriated.    Let  us  suppose,  further,  that  everyone 


SURVEY   OF   DISTRIBUTION   AND   EXCHANGE.         261 

is  not  only  of  equal  capacity,  but  of  equal  willingness  to  work, 
and  does  in  fact  work  equally  hard :  also  that  all  work  is  un- 
skilled,— or  rather  unspecialized  in  this  sense,  that  if  any  two 
people  were  to  change  occupations,  each  would  do  as  much  and 
as  good  work  as  the  other  had  done.  Lastly,  let  us  suppose  that 
everyone  produces  things  ready  for  sale  without  aid,  and  that 
he  himself  disposes  of  them  to  their  ultimate  consumers:  so  that 
the  demand  for  everything  is  direct.  In  this  case  the  problem 
of  value  is  very  simple.  Things  exchange  for  one  another  in 
proportion  to  the  labour  spent  in  producing  them.  If  the 
supply  of  any  one  thing  runs  short,  it  may  for  a  short  time 
sell  for  more  than  its  normal  price  :  it  may  exchange  for 
things  the  production  of  which  had  required  more  labour  than 
it  had ;  but,  if  so,  people  will  at  once  leave  other  work  to  produce 
it,  and  in  a  very  short  time  its  value  will  fall  to  the  normal 
level.  There  may  be  slight  temporary  disturbances,  but  as  a 
rule  anyone's  earnings  will  be  equal  to  those  of  anyone  else. 
In  other  words,  each  will  have  an  equal  share  in  the  net  sum 
total  of  things  and  services  produced ;  or,  as  we  may  say,  the 
Natioiy^JiDwidend.  This  will  constitute  the  demand  for 
labour;  and  might  be  called  the  common  Wages-Fund  or 
Earnings  Fund,  or  better  still  Earnings-stream ;  since  a  Fund 
fails  to  suggest  the  constant  flow  of  new  ^Soas  into  the  world 
through  supply,  which  flow  out  again  through  demand  and 
consumption. 

If  now  a  new  invention  doubles  the  efiiciency  of  work  in 
any  trade,  so  that  a  man  can  make  twice  as  many  things  of  a 
certain  kind  in  a  year  without  requiring  additional  appliances, 
then  those  things  will  fall  to  half  their  old  exchange  value. 
The  effective  demand  for  everyone's  labour  will  be  a  little 
increased ;  and  the  share  which  he  can  draw  from  the  common 
earnings-stream  will  be  a  little  larger  than  before.  He  may  if 
he  chooses  take  twice  as  many  things  of  this  particular  kind, 
together  with  his  old  allowance  of  other  things  :  or  he  may 
take  somewhat  more  than  before  of  everything.    If  there  be  an 


262  BOOK  VI.  CH.  I.  §§  2 — 4. 

increase  in  the  efficienc}''  o£  production  in  many  trades  the 
common  earnings-stream  or  dividend  will  be  considerably 
larger;  the  commodities  produced  by  those  trades  will  con- 
stitute a  considerably  larger  demand  for  those  produced  by 
others,  and  increase  the  purchasing  power  of  everyone's 
earnings. 

§  3.  Nor  will  the  position  be  generally  changed  if  we 
suppose  that  some  specialized  skill  is  required  in  each  trade, 
provided  other  things  remain  as  before :  that  is,  provided  the 
workers  are  still  supposed  to  be  all  of  equal  capacity  and 
Next  sup-  industry;  and  all  trades  to  be  equally  agreeable 

P°^^l^^*. .        and  equally  easy  to  be  learnt.     The  normal  rate 

each  has  his  ^  j  j 

own  trade.  of  earnings  will  still  be  the  same  in  all  trades  ; 
for  if  a  day's  labour  in  one  trade  produces  things  that  sell  for 
more  than  a  day's  labour  in  others,  and  this  inequality  shows 
any  signs  of  lasting,  people  will  bring  up  their  children  by  pre- 
ference to  the  favoured  trade.  It  is  true  that  there  may  be 
some  slight  irregularities.  The  drifting  from  one  trade  to 
another  must  occupy  time ;  and  some  trades  may  for  a  while 
get  more  than  their  normal  share  of  the  earnings-stream,  while 
others  get  less,  or  even  lack  work.  But  in  spite  of  these 
disturbances,  the  current  value  of  everything  will  fluctuate 
about  its  normal  value;  which  will  in  this  case,  as  in  the 
preceding,  depend  simply  on  the  amount  of  labour  spent  on 
the  thing :  for  the  normal  value  of  all  kinds  of  labour  will 
still  be  equal.  The  productive  power  of  the  community  will 
have  been  increased  by  the  division  of  labour;  the^^ommon 
National  DividendJ)r  Earnings-streaiUL  will  be  larger ;  am  as  all 
will,  putting  aside  passing  disturbances,  share  alike  in  it,  each 
will  be  able  to  buy  with  the  fruits  of  his  own  labour  things 
more  serviceable  to  him  than  he  could  have  produced  for 
himself. 

In  this  stage,  as  in  those  considered  before,  it  is  still  true 
that  the  value  of  each  thing  corresponds  closely  to  the  amount 
of  labour  spent  upon  it ;  and  that  the  earnings  of  everyone  vary 


SURVEY   OF   DISTRIBUTION  AND   EXCHANGE.  263 

with  the  demand  for  man's  work  offered  by  Nature,  in  the  then 
existing  state  of  the  arts  of  production. 

§  4.     Next,  without  troubling  ourselves  as  to  the  influence 
which  the  cost  of  rearing  and  training  workers  exerts  on  their 
efficiency,  but  leaving  that  matter  to  be  discussed  with  other 
aspects  of  the  Supply  side  of  Distribution  in  the  next  chapter, 
let  us  look  at  the  influence  of  changes  in  the  numbers  of  the 
population  on  the  incomes  which  Nature  will  yield  ^^^^  ^^^^^ 
to  them.     We  are  still  supposing  all  labour  to  be  for  growth  of 
of  the  same  grade,  and  the  National  Dividend  to  be  but  not  *°"' 
divided  out  equally  to  each  family,  save  for  some  dependent  on 

T    ,  .  .  T   .  ,     ,1  «  earnings. 

slight  passing  inequalities;   and  tnereiore  every 
improvement  in  the  arts  of  production  or  transport,  every  new 
discovery,  every  new  victory  over  nature  will  increase  equally 
the  comforts  and  luxuries  at  the  command  of  each  family. 

But  on  the  other  hand,  the  growth  of  population,  if  even  a 
very  slow  rate  of  increase  is  maintained  long  enough,  must 
ultimately  outgrow  the  improvements  in  the  arts  of  production, 
and  cause  the  law  of  diininishing  return  to  assert  itself ;  and 
"t\\()  \;i1lu'  of  any  kind  of  produce  must  equal  that  of  the  labour, 
aided  on  our  supposition  by  a  uniform  quantity  of  capital 
throughout,  which ,  is  required  to  produce  it  on  the  margin  of 
cultivation.  (The  marginal  application  of  labour  may  be  on 
land  that  will  barely  repay  any  labour  at  all;  or  it  may  be 
that  cultivation  of  fertile  land  which  is  only  just  remunerative.) 
The  surplus  which  is  returned  by  Nature  to  the  labour  applied 
under  advantageous  circumstances,  may  conceivably  be  appro- 
priated to  public  uses :  or  conceivably  everyone  may  have  an 
equal  share  of  land ;  and  in  either  case  there  will  be  a  true 
surplus.  BuUihft4JaiUe!ta«iii,PM£Mtim-aM^x^ 
present  tlie  simple  form  of  Nature's ^ offering  for  man's  labour  a 
demand,  which,  at  all  events  after  some  considerable  applications 
of  labour  have  been  made,  will  be  at  a  diminishing  rate.  The 
aggregate  produce  is  the  National  Dividend,  in  which  each  gets 
an  equal  share ;  each  standing  to  gain  equally  by  any  improve- 


264  BOOK  VI.  CH.  I.  §§  4—6. 

ment  in  the  arts  of  production  whether  in  his  own  trade  or 
any  other. 

§  5.     Next  suppose  that  labour  is  not  all  of  one  industrial 

grade;    but   of   several.     Suppose   also   that   parents  always 

bring  up  their  children  to  an  occupation  in  their  own  grade, 

having  a  free  choice  within  that  arrade,  but  not 

Next  allow  for  »  o  j 

differences  in  outside  it.  Further,  suppose  that  the  increase 
^^^  ^'  of  population  in  each  grade  is  governed  by  other 

than  economic  causes ;  as  before  it  may  be  fixed,  or  it  may  be 
influenced  by  changes  in  custom,  in  moral  opinion,  &c.  In  this 
case  also  the  aggregate  national  dividend  will  still  be  governed 
by  the  abundance  of  Nature's  return  to  man's  work  in  the 
existing  state  of  the  arts  of  production ;  but  the  distribution 
of  that  dividend  between  the  different  grades  will  be  unequal, 
and  governed  by  demand. 

Suppose  for  instance  artists  to  form  a  grade  or  caste  by 
themselves;  then,  their  number  being  fixed,  or  at  least  con- 
trolled by  causes  independent  of  their  earnings,  their  earnings 
will  be  governed  by  the  resources  which  the  population  have 
available  for  spending  on  such  gratifications  as  artists  can 
supply  for  them  and  their  desire  for  such  gratifications. 

§  6.  We  may  now  leave  the  imaginary  world,  in  which 
every  one  owns  the  capital  that  aids  him  in  his  work ;  and 
return  to  our  own,  where  the  relations  of  labour  and  capital 
Return  to  real  play  a  great  part  in  the  problem  of  distribution ; 
sMer'on  """  ^^^  where  the  action  of  economic  forces  is  largely 
demand.  directed  by  a  set  of  men  who  specialize  them- 

selves in  the  organization  of  business. 

It  is  chiefly  their  agency  in  the  modern  world  which 
The  Law  of  justifies  the  common  sayings  of  every  day  life, 
fmpSed"n°the^  ^^^^  "every  thing  tends  to  find  its  own  level," 
common  say-  that  "  most  men  earn  just  about  what  they  are 
business  worth,"  and  "  if  one  man  can  earn  twice  as  much 

everything        ^s  another,   that  shows  that  his  work  is  worth 

finds  its  own 

level.  twice  as  much,'    that  "machinery   will  displace 


SURVEY  OF  DISTRIBUTION  AND   EXCHANGE.         265 

manual  labour  whenever  it  can  do  the  work  cheaper."  These 
are  really  informal  and  not  strictly  accurate  ways  of  putting 
special  cases  of  the  Law  of  Substitution  \  For  if  there  are 
two  methods  of  obtaining  the  same  result,  one  by  skilled  and  j 
the  other  by  unskilled  labour,  that  one  will  be  adopted  which 
is  more  efficient  in  proportion  to  its  cost.  There  will  be  a( 
margin  on  which  either  will  be  indifferently  applied,  and  on  that 
margin  the  efficiency  of  each  will  be  in  proportion  to  its  cost. 

Again,  there  will  be  a  rivalry  between  hand-power  and 
machine-power  similar  to  that  between  two  different  kinds 
of  hand-power  or  two  different  kinds  of  machine-power. 
Thus  hand-power  has  the  advantage  for  some  operations,  as, 
for  instance,  for  weeding  out  valuable  crops  that  have  an 
irregular  growth ;  horse-power  in  its  turn  has  a  clear  advan- 
tage for  weeding  an  ordinary  turnip-field;  and  the  applica- 
tion of  each  of  them  will  be  pushed  till  any  further  use  of  it 
would  bring  no  net  advantage.  On  the  margin  of  indifference 
as  between  hand-power  and  horse-power  their  prices  must  be 
proportionate  to  their  efficiency ;  and  thus  the  Law  of  Substi- 
tution will  have  established  a  direct  relation  between  the  wages 
of  labour  and  the  price  that  has  to  be  paid  for  horse-power. 

As  a  rule  many  kinds  of  labour,  of  raw  material,  of 
machinery  and  other  plant,  and  of  business  organization  both 
internal  and  external,  go  to  the  production  of  a  commodity  : 
and  the  advantages  of  economic  freedom,  are  never  more 
strikingly  manifest  than  when  a  business  man  endowed  with 

1  See  above,  Book  v.  ch.  in.  and  iv.  It  will  be  remembered  that,  so  far 
as  the  knowledge  and  business  enterprise  of  the  producers  reach,  they  will  in 
each  case  choose  those  factors  of  production  which  are  best  for  their  purpose: 
the  sum  of  the  prices  which  they  pay  for  those  factors  which  are  used  is,  as  a 
rule,  less  than  the  sum  of  the  prices  which  they  would  have  to  pay  for  any 
other  set  of  factors  which  could  be  substituted  for  them :  whenever  it  appears 
to  the  producers  that  this  is  not  the  case,  they  will,  as  a  rule,  set  to  work  to 
substitute  the  less  expensive  method.  The  margin  of  profitableness  is  not  to 
be  regarded  as  a  mere  point  on  any  one  fixed  line  of  possible  investment ;  but 
as  a  boundary  line  of  irregular  shape  cutting  one  after  another  every  possible 
line  of  investment.    See  especially  pp.  222 — 3,  231 — 2. 


I 


266  BOOK  VI.  CH.  I.  §§  6,  7. 

genius  is  trying  experiments,  at  his  own  risk,  to  see  whether 
some  new  method,  or  combination  of  old  methods  will  not  be 
more  efficient  than  the  old.  Every  business  man  indeed  accord- 
ing to  his  energy  and  ability  is  constantly  endeavouring  to 
obtain  a  notion  of  the  relative  efficiency  of  every  agent  of 
production  that  he  employs,  as  well  as  of  others  that  might 
possibly  be  substituted  for  some  of  them.  He  works  generally 
by  trained  instinct  rather  than  formal  calculation.  But  in  his 
own  way,  he  estimates  as  best  he  can  how  much  net  addition  to 
his  total  product  will  be  caused  by  the  addition  of  a  certain 
extra  use  of  any  one  agent ;  net,  that  is  after  deducting  for  any 
extra  expenses  that  may  be  indirectly  caused  by  the  change, 
and  adding  for  any  incidental  savings.  The  result  is  the  net 
product  of  that  agent,  and  he  endeavours  to  employ  each  up 
to  that  margin  at  which  its  net  product  would  no  longer  exceed 
the  price  he  would  have  to  pay  for  it. 

To  sum  up  the  whole  in  a  comprehensive,  if  somewhat 
Marginal  difficult  statement : — The  margins  of  the  applica- 
uses  do  not  tions  of  each  agent  of  production,  including  land, 
value,  are  governed  by  the  general  conditions  of  demand 

^"*  ^rn  d  ^^  relation  to  supply  :  that  is,  on  the  one  hand  by 
together  the  urgency  of  all  the  uses  to  which  the  agent  can 

by  the  ^e  put,   taken  together   with  the  means   at  the 

conditions       command   of   those   who   need   it  ;    and,    on   the 

of  demand  _  -^  ' 

in  relation  other  hand,  by  the  available  stocks  of  it,  whether 
o  supp  y.  these  are  fixed,  as  in  the  case  of  land,  or  capable 
of  increase,  as  in  the  case  of  labour.  The  marginal  uses  of 
each  agent,  its  marginal  net  efficiency  in  each  use,  and 
therefore  its  exchange  value  in  each  use,  are  all  governed  by 
these  general  conditions ;  while  equality  is  maintained  between 
its  values  for  each  use  by  the  constant  tendency  of  the  law  of 
substitution  to  shift  it  from  uses,  in  which  its  services  are  of 
less  value,  to  others  in  which  they  are  of  greater  ^ 

1  All  objection  raised  by  some  critics  that  the  part  played  by  the  marginal 
use  of  an  agent  of  production  is  represented,  in  modern  economics,  as  govern- 


SURVEY   OF   DISTRIBUTION    AND   EXCHANGE.          267 

§  7.  So  far  we  have  considered  chiefly  the  demand  for 
labour.  But  it  may  be  well  to  push  a  little  further  our 
illustration  of  the  nature  of  the  demand  for  capital  for  any 
use ;  and  to  observe  the  way  in  which  the  aggregate  demand 
for  it  is  made  up  of  the  demands  for  many  different  uses. 

To  fix  the  ideas,  let  us  take  some  particular  trade,  say 
that  of  hat-making,  and  inquire  what  determines 
the  amount  of  capital  which  it  absorbs.     Sup-  the  demand  for 
pose  that  the  rate  of  interest  is  3  per  cent,  per  particular^ 
annum  on  perfectly  good  security;  and  that  the  trade, 
hat-making  trade  absorbs  a   capital  of   one  million  pounds. 
This  implies  that  there  is  a  million  pounds'  worth  of  capital 
which  the  hat-making  trade  can  turn  to  so  good  account  that 
they  would  pay  3  per  cent,  per  annum  net  for  the  use  of  it 
rather   than   go  without  it.     Some   things  are  necessary  to 
them;    they  must  have   not   only  some   food,   clothing,   and 
house-room,  but  also  some  Circulating  capital,  such  as  raw 
material,  and  some  Fixed  capital,  such  as  tools  and  perhaps  a 
little  machinery. 

Competition  prevents  anything  more  than  the  ordinary 
trade  profit  being  got  by  the  use  of  this  necessary  capital ;  but 
the  loss  of  it  would  be  so  injurious  that  those  in  the  trade 
would  have  been  willing  to  pay  50  per  cent,  on  the  capital,  if 
they  could  not  have  got  the  use  of  it  on  easier  terms.  There 
may  be  other  machinery  which  the  trade  would  have  refused 

ing  the  whole,  is  thus  seen  to  rest  on  a  misapprehension.  The  withdrawal  of 
iron  from  any  of  its  necessary  uses  would  have  just  the  same  influence  on  its 
value  as  its  withdrawal  from  its  marginal  uses ;  in  the  same  way  as  in  the 
case  of  a  boiler  for  cooking  under  high  pressure,  the  pressure  in  the  boiler 
would  be  affected  by  the  escape  of  any  other  steam  just  as  it  Avould  by  the 
escape  of  the  steam  in  one  of  the  safety  valves :  but  in  fact  the  steam  does 
not  escape  except  through  the  safety  valves;  and  iron,  or  any  other  agent  of 
production,  is  not  thrown  out  of  use  except  at  points  on  its  marginal  use. 
Compare  the  illustration  taken  from  the  derived  demand  for  plasterers'  labour, 
in  Book  v.  Ch.  vi. 

This  subject  is  further  discussed  in  Principles  VI.  i.  6  (Ed.  in.):  and  later 
on  the  difficulties  connected  with  the  phrase  the  Net  product  of  labour  are 
examined  at  some  length. 


268  BOOK  VI.  CH.  I.  §§  7,  8. 

to  dispense  with  if  the  rate  of  interest  had  been  20  per  cent, 
per  annum,  but  not  if  it  had  been  higher.  If  the  rate  had 
been  10  per  cent.,  still  more  would  have  been  used ;  if  it  had 
been  6  per  cent.,  still  more ;  if  4  per  cent.,  still  more ;  and 
finally  the  rate  being  3  per  cent,  they  use  more  still.  When 
they  have  this  amount,  the  marginal  utility  of  the  machinery, 
i.e.  the  utility  of  that  machinery  which  it  is  only  just  worth 
their  while  to  employ,  is  measured  by  3  per  cent. 

A  rise  in  the  rate  of  interest  would  diminish  their  use 
of  machinery;  for  they  would  avoid  the  use  of  all  that  did 
not  give  a  net  annual  surplus  of  more  than  3  per  cent,  on  its 
value.  And  a  fall  in  the  rate  of  interest  would  lead  them  to 
demand  the  aid  of  more  capital,  and  to  introduce  machinery 
which  gave  a  net  annual  surplus  of  something  less  than  3  per 
cent,  on  its  value.  Again,  the  lower  the  rate  of  interest,  the 
more  substantial  will  be  the  style  of  building  used  for  the 
hat-making  factories  and  the  homes  of  the  hat-makers ;  and 
a  fall  in  the  rate  of  interest  will  lead  to  the  employment  of 
more  capital  in  the  hat-making  trade  in  the  form  of  larger 
stocks  of  raw  material,  and  of  the  finished  commodity  in  the 
hands  of  retail  dealers  \ 

The  methods  in  which  capital  will  be  applied  may  vary 
Variety  in  the  much  even  within  the  same  trade.  Each  under- 
mand  for^capi-  ^^^er  having  regard  to  his  own  means,  will  push 
tal.  the  investment  of  capital  in  his  business  in  each 

several  direction  until  what  appears  in  his  judgment  to  be  the 
margin  of  profitableness  is  reached ;  and  that  margin  is,  as  we 
have  said,  a  boundary  line  cutting  one  after  another  every 
possible  line  of  investment,  and  moving  irregularly  outwards 
in  all  directions  whenever  there  is  a  fall  in  the  rate  of  interest 
at  which  extra  capital  can  be  obtained.  Thus  the  demand  for 
the  loan  of  capital  is  the  aggregate  of  the  demands  of  all 
individuals  in  all  trades ;  and  it  obeys  a  law  similar  to  that 

1  On  Jevons'  doctrine  of  the  "Advantage  of  Capital  to   Industry,"   see 
rrindiJles,  Ed.  iii.  p.  487. 


SURVEY   OF   DISTRIBUTION  AND   EXCHANGE.         269 

which  holds  for  the  sale  of  commodities ;  just  as  there  is  a 
certain  amount  of  a  commodity  which  can  find  purchasers  at 
any  given  price,  and  when  the  price  rises  the  amount  that  can 
be  sold  diminishes,  so  it  is  with  regard  to  the  use  of  capital. 

And  as  with  borrowings  for  productive  purposes,  so  with 
those  of  spendthrifts  or  Governments  who  mort-  General  con- 
gage  their  future  resources  in   order  to  obtain  demandfor° 
the  means  of  immediate  expenditure.     It  is  true  capital, 
that  their  actions  are  often  but  little  governed  by  cool  calcula- 
tion, and  that  they  frequently  decide  how  much  they  want  to 
borrow  with  but  little  reference  to  the  price  they  will  have  to 
pay  for  the  loan ;    but  still  the  rate  of    interest  exercises  a 
perceptible  influence  on  borrowings  even  of  this  kind. 

^  8.     There    is    one    more    difficulty  connected  with    the 
demand  for  the  various  agents  of  production,  which  we  must 
consider  before  we  end  this  chapter  and  enter  on  p  j... 
the  study  of  the  mutual  relations  of  demand  and  of  the  national 
supply  for  those  agents.     The  difficulty  relates  to 
the  mode  of  estimating  the  national  dividend. 

When  we  speak  of  the  national  dividend,  or  distributable  net 
income  of  the  whole  nation,  as  divided  into  the  shares  of  land, 
labour  and  capital,  we  must  be  clear  as  to  what  things  we  are 
including,  and  what  things  we  are  excluding.  It  will  seldom 
make  very  much  difference  to  our  argument  whether  we  use 
all  the  terms  broadly,  or  all  the  terms  narrowly.  But  it  is 
essential  that  our  usage  should  be  consistent  throughout  any 
one  argument ;  and  that  whatever  is  included  on  one  side  of 
the  account  of  the  demand  for,  and  supply  of,  capital  should  be 
included  also  on  the  other. 

The  labour  and  capital  of  the  country,  acting  on  its  natural 
resources,  produce  annually  a  certain  net  aggregate  of  com- 
modities, material  and  immaterial,  including  services  of  all 
kinds.  This  is  the  true  net  annual  income,  or  revenue,  of  the 
country;  or,  the  national  dividend.  We  may,  of  course, 
estimate  it  for  a  year  or  for  any  other  period ;  the  important 


270  BOOK   VI.   CH.    I.  §  8. 

point  is,  as  already  hinted,  that  it  is  a  continuous  stream 
always  flowing,  and  not  a  reservoir  or  store,  or  in  the  narrower 
sense  of  the  word  a  Fund.  The  terms  N&tional  Income  and 
National  Dividend  are  convertible ;  only  the  latter  is  the  more 
convenient  when  we  are  looking  at  the  national  income  in  the 
character  of  the  sum  of  the  new  sources  of  enjoyments  that 
are  available  for  distribution  \ 

1  We  have  already  noticed  that  many  of  the  services  which  a  person 
renders  to  himself  are  not  in  practice  counted  as  part  of  his  income;  though 
if  they  were  performed  for  him  by  a  valet  or  hairdresser  they  would  be 
reckoned  among  the  commodities  (or  economic  goods)  on  which  he  spent  his 
means:  that  is,  they  would  be  reckoned  as  part  of  his  real  income.  We  have 
noticed  also  that  though  the  benefits  which  a  man  derives  from  hving  in  his 
own  house  are  commonly  reckoned  as  part  of  his  real  income,  and  estimated 
at  the  net  rental  value  of  his  house;  the  same  plan  is  not  followed  with 
regard  to  the  benefits  which  he  derives  from  the  use  of  his  furniture  and 
clothes.  It  is  best  here  to  follow  the  common  practice,  and  not  count  as  part 
of  the  national  income  or  dividend  anything  that  is  not  commonly  counted  as 
part  of  the  income  of  the  individual.  Thus,  unless  anything  is  said  to  the 
contrary,  the  services  which  a  person  renders  to  himself,  and  those  which  he 
renders  gratuitously  to  members  of  his  family  or  friends,  also  the  benefits 
which  he  derives  from  using  his  own  personal  goods,  or  public  property  such 
as  toll-free  bridges,  are  not  reckoned  as  parts  of  the  national  dividend,  but  are 
left  to  be  accounted  for  separately. 

It  would  be  possible,  and,  for  some  theoretical  purposes,  it  would  be  best  to 
include  them :  but  if  they  are  included  in  the  national  dividend,  the  efforts  and 
the  material  wealth  which  are  their  sources  must  be  counted  as  part  of  the 
labour  and  capital  which  are  agents  of  production ;  and  the  services  and  the 
benefits  themselves  must  be  counted  as  earnings  of  labour  or  interest  on 
capital  as  the  case  may  be.  It  will  be  recollected  that  in  Book  ii.  Ch.  iv.,  the 
standard  delimitations  of  Capital  and  Income  were  chosen  specially  with 
reference  to  this  their  most  important  use. 


CHAPTER  11. 

PRELIMINARY  SURVEY   OF   DISTRIBUTION    AND    EXCHANGE, 
CONTINUED. 

§  1 .  In  the  last  chapter  we  confined  our  attention  to  the 
manner  in  which  the  national  dividend  is  distributed  among 
the  various  agents  of  production,  in  accordance  with  the 
quantity  of  each  several  agent,  and  the  services  which  it 
renders.  We  have  now  to  consider  the  other  side  of  the 
problem,  viz.  the  reflex  influence  which  the  remuneration  of 
each  agent  exerts  on  the  supply  of  that  agent. 

When  we  inquire  what  it  is  that  determines  the  marginal 
efficiency  of  a  factor  of  production,  whether  it  be  any  kind  of 
labour  or  material  capital,  we  find  that  the  immediate  solution 
requires  a  knowledge  of  the  available  supply  of  that  factor; 
and  that  the  ultimate  solution  requires  a  knowledge  also  of 
the  causes  that  determine  that  supply.  The  nominal  value  of 
everything,  whether  it  be  a  particular  kind  of  labour  or  capital 
or  anything  else,  rests,  like  the  keystone  of  an  arch,  balanced 
in  equilibrium  between  the  contending  pressures  of  its  two 
opposing  sides ;  the  forces  of  demand  press  on  the  one  side,  and 
those  of  supply  on  the  other  \ 

The  production  of  everything  is  carried  up  to  that  limit 
or  margin  at  which  there  is  equilibrium  between  the  forces 
of  demand  and  supply ;  that  is,  the  limit  at  which  any  further 

1  Bicardo  and  his  followers  were  familiar  with  the  action  of  the  law  of 
substitution,  but  they  laid  insufficient  stress  on  the  side  of  demand;  and  in 
the  reaction  too  exclusive  importance  has  been  assigned  to  it. 


272  BOOK  VI.  CH.   11.  §§  1,  2. 

production  would  bring  in  less  than  a  remunerative  price. 
^,  The  amount  of  the  commodity  and  its  price,  the 

The  amounts  ''  r         J 

and  prices  of  amounts  of  the  several  factors  or  agents  of  pro- 
agents^o?  duction  used  in  making  it,  and  their  prices — 
production  all  these  elements  mutually  govern  one  another, 
govern  one  ^"^^  i^  ^^  external  cause  should  alter  any  one  of 
another.  them  the  effect  of  the  disturbance  extends  to  all 

the  others. 

Just  in  the  same  way,  when  several  balls  are  lying  in  a 
Parallel  in  bowl,  they  mutually  govern  one  another's  posi 
stances  from  tions.  And  again  when  a  heavy  weight  is 
suspended  by  several  elastic  strings  of  different 
strengths  and  lengths  attached  to  different  points  in  the 
ceiling,  the  equilibrium  positions  of  all  the  strings  and  of  the 
weight  mutually  govern  one  another :  if  any  one  of  the 
strings  that  is  already  stretched  is  shortened,  everything  else 
will  change  its  position,  and  the  length  and  the  tension  of 
every  other  string  will  be  altered  also. 

§  2.  Let  us  then  call  to  mind  the  chief  results  of  the  study 
of  the  supply  of  the  various  agents  of  production  made  in 
Books  IV  and  Y.  We  need  not  dwell  on  the  fact  that  the 
willingness  of  any  one  to  undergo  long  and  severe  exertion 
is  increased  generally  by  an  increase  in  the  reward  to  be  got 
for  it\ 

It  is  more  important  to  insist  that  in  the  long  run  the 
supply  of  efficient  labour  is  very  closely  dependent  on  the  rate 
of  earnings  and  the  manner  in  which  they  are  spent.  It  is 
indeed  true  that  a  permanent  increase  of  prosperity  is  quite  as 

1  Book  IV.  ch.  I.  This  assumes  other  things  to  be  equal.  But  if  he  had 
already  earned  enough  to  supply  his  customary  wants,  he  might  refuse  to 
continue  work  even  for  a  high  rate  of  pay ;  though,  if  he  had  been  throughout 
paid  at  a  low  rate  and  were  still  in  urgent  need  of  money,  he  might  have 
continued  to  work  for  a  low  rate.  Those  who  earn  the  lowest  rate  of  wages 
are  often  those  who  are  most  willing  to  work  long  hours:  but  their  work 
though  lowly  paid  is  not  always  cheap.  To  this  we  shall  return.  But  see 
Principles  VI.  ii.  2  (Ed.  iii.). 


SURVEY   OF   DISTRIBUTION   AND   EXCHANGE.  273 

likely  to  lower  as  to  raise  the  birth-rate ;  though  a  temporary 
improvement  will  give  a  good  many  young  people  ^j^j^  ^ 
the  opportunity  to  marry  and  set  up  house,  for  dependence 
which  they  have  been  waiting.     But,  on  the  other  gfficTien/  ° 
hand,  an  increase  of  wages  is  almost  certain  to  labour  on 
diminish  the  death-rate,  unless  it  has  been  ob- 
tained at  the  price  of  the  neglect  by  mothers  of  their  duties  to 
their  children.     And  the  case  is  much  stronger  when  we  look 
at  the  influence  of  high  wages  on  the  physical  and  mental 
vigour  of  the  coming  generation.     For  each  grade  of  work] 
there   is   a   certain   consumption   which   is    strictly  speaking  i 
necessary  in  this  sense,  that  if  any  of  it  is  curtailed  the  work  1 
cannot  be  done  efficiently  :  the  adults  might  indeed  take  good 
care  of  themselves  at  the  expense  of  their  children,  but  that 
would  only  defer  the  decay  of  efficiency  for  one  generation. 
Further   there   are    conventional   necessaries,    which    are    so 
strictly  demanded  by  custom  and  habit,  that  in  fact  people 
generally  would  give  up  much  of  their  necessaries,  strictly  so 
called,   rather   than   go   without   the   greater   part   of   these. 
Thirdly,  there  are  habitual  comforts,  which  some,  though  not   j 
all,  would  not  entirely  relinquish  even  when  hardly  pressed._J 
Many  of  these  conventional  necessaries  and  customary  comforts 
are  the  embodiment  of  material  and  moral  progress.     Their 
extent  varies  from  age  to  age  and  place  to  place ;  and  with  its 
variations  there  is  a  corresponding  but  inverse  variation  in  the 
extent  to  which  man,  himself  always  the  sole  end  of  all  pro- 
duction, is  also  an  economical  agent  of  production. 

Any  increase  in  consumption  that  is  strictly  necessary  to 
efficiency  pays  its  own  way  and  adds  to,  as  much  as  it  draws 
from,  the  national  dividend.  But  an  increase  of  consumption, 
that  is  not  thus  necessaiy,  can  be  affiarded  only  through  an 
increase  in  man's  command  over  nature :  and  that  can  come 
about  through  advance  in  knowledge  and  the  arts  of  production, 
through  improved  organization  and  access  to  larger  and  richer 
sources  of  raw  material,  and  lastly  through  the  growth  of 
M.  18 


274  BOOK  VI.  CH.  II.  §§  2,  3. 

capital  and  the  material  means  of  attaining  desired  ends  in 
any  form. 

Thus  the  question  how  closely  the  supply  of  labour  responds 
to  the  demand  for  it,  is  in  a  great  measure  resolved  into  the 
question  how  great  a  part  of  the  present  consumption  of  the 
people  at  large  consists  of  necessaries,  strictly  so  called,  for 
the  life  and  efficiency  of  young  and  old  ;  how  much  consists  of 
conventional  necessaries  which  theoretically  could  be  dispensed 
with,  but  practically  would  be  preferred  by  the  majority  of 
the  people  to  some  of  those  things  that  were  really  necessary 
for  efficiency ;  and  how  much  is  really  superfluous  regarded  as 
a  means  towards  production,  though  of  course  part  of  it  may 
be  of  supreme  importance  regarded  as  an  end  in  itself. 

The  earlier  French  and  English  economists,  as  we  noted  at 
the  beginning  of  the  preceding  chapter,  classed  nearly  all 
consumption  under  the  first  head.  They  did  so,  partly  for 
simplicity,  and  partly  because  the  working  classes 
penditure  of  were  then  poor  in  England  and  very  poor  in 
classes^  ^"^  France ;  and  they  inferred  that  the  supply  of 
conduces  to  labour  would  correspond  to  changes  in  the  effec- 
tive demand  for  it  in  the  same  way,  though  of 
course  not  quite  as  fast  as  that  of  machinery  would.  And  an 
answer  not  very  different  from  theirs  must  be  given  to  the 
question  with  regard  to  the  less  advanced  countries  even  now : 
for  throughout  the  greater  part  of  the  world  the  working 
classes  can  afford  but  few  luxuries  and  not  many  conventional 
necessaries ;  and  any  increase  in  the  demand  for  them  made  by 
the  other  agents  of  production  would  result  in  so  great  an 
increase  of  their  numbers  as  to  bring  down  their  earnings 
quickly  to  nearly  the  old  level  at  their  mere  expenses  of 
rearing.  In  short,  over  the  greater  part  of  the  world  wages 
are  governed,  very  nearly  after  the  so-called  iron  or  brazen 
law,  which  ties  them  close  to  the  cost  of  rearing  and  sustaining 
a  rather  inefficient  class  of  labourers.  As  regards  the  modern 
western  world  the  answer  is  materially  different ;  so  great  has 


SURVEY   OF   DISTRIBUTION   AND   EXCHANGE.         275 

been  the  recent  advance  in  knowledge  and  freedom,  in  vigour 
and  wealth,  and  in  the  easy  access  to  rich  distant  fields  for 
the  supply  of  food  and  raw  material.  But  even  in  England 
to-day  much  the  greater  part  of  the  consumption  of  the  main 
body  of  the  population  conduces  to  sustain  life  and  vigour ; 
not  perhaps  in  the  most  economical  manner,  but  yet  without 
any  great  waste.  And  it  remains  generally  true  that,  if  the 
state  of  knowledge,  and  of  social  and  domestic  habits  be 
given  j  then  the  vigour  of  the  people  as  a  whole,  if  not  their 
numbers ;  and  both  the  numbers  and  vigour  of  any  trade  in 
particular,  may  be  said  to  have  a  supply-price  in  this  sense, 
that  there  is  a  certain  level  of  the  demand-price  which  will 
keep  them  stationary;  that  a  higher  price  would  cause  them 
to  increase,  and  that  a  lower  price  would  cause  them  to 
decrease. 

Thus  again  we  see  that  demand  and  supply  exert  co-ordinate 
influences  on  wages ;  neither  has  a  claim  to  predominance ;  any 
more  than  has  either  blade  of  a  pair  of  scissors, 
or  either  pier  of  an  arch.     Wages  tend  to  equal  influences 
the  net  product  of  labour ;  its  marginal  produc-  °nd  supply  on 
tivity  rules  the  demand  price  for  it :  and,  on  the  wages  are 
other  side,  wages  tend  to  retain  a  close  though 
indirect  and  intricate  relation  with  the  cost  of  rearing,  train- 
ing and  sustaining  the  energy  of  efficient  labour.    The  various 
elements  of  the  problem  mutually  determine  (in  the  sense  of 
governing)  one  another;    and  incidentally  this  secures  that 
supply-price  and  demand-price  tend  to  equality  :   wages  are 
not  governed  by  demand-price  nor  by  supply-price,   but  by 
the  whole  set  of  causes  which  govern  demand  and  supply^. 

§  3.     We  may  now  pass  to  consider  the  supply  of   the 

1  For  convenience  we  may  speak  of  the  "general  rate  of  wages"  or  "the 
wages  of  labour  in  general " :  but  in  the  modern  world  each  of  a  hundred  or 
more  groups  of  workers  has  its  own  wage  problem,  its  o^vn  set  of  special 
causes,  natural  and  artificial,  controlling  the  supply-price,  and  limiting  the 
number  of  its  members :  each  has  its  own  demand-price  governed  by  the  need 
that  other  agents  of  production  have  of  its  services. 

18—2 


276  BOOK  VL  CH.   II.  I  8,  4. 

material  agents  of  production.  We  have  seen*  how  the 
accumulation  of  wealth  is  governed  by  a  great  variety  of 
causes :  by  custom,  by  habits  of  self-control  and  of  realizing 
Summary  of  ^^^  future,  and  above  all  by  the  power  of  family 
earlier  conciu-  afFection  :  securitv  is  a  necessary  condition  for  it, 

sionsastoin-  ,  pi  it  i- 

fluenceofinte-  and  the  progress  or  knowledge  and  intelligence 
rest  on  saving,  f^-thers  it  in  many  way s.  But  though  affected 
by  many  other  causes  other  than  the  rate  of  interest ;  and 
though  the  rate  of  saving  of  many  people  is  but  little  aifected 
by  the  rate  of  interest,  while  a  few  who  have  determined  to 
secure  an  income  of  a  certain  fixed  amount  for  themselves  or 
their  family  will  save  less  with  a  high  rate  than  with  a  low 
rate  of  interest;  yet  a  strong  balance  of  evidence  seems  to 
rest  with  the  opinion  that  a  rise  in  the  rate  of  interest,  or 
demand-price  for  saving,  tends  to  increase  the  volume  of 
saving. 

Thus  then  interest,  being  the  price  paid  for  the  use  of 
The  rate  of  in-  Capital  in  any  market,  tends  towards  an  equi- 
terest  is  deter-  Hbrium  level  such  that  the  aggregate  demand  for 

mined  in  the  i  <?  • 

long  run  by  capital  in  that  market,  at  that  rate  of  interest,  is 
the^s^  forces^^  ®^^^^  *^  ^^^  aggregate  stock  forthcoming  there 
demand.  at  that  rate.     If  the  market,  which  we  are  con- 

sidering, is  a  small  one — say  a  single  town,  or  a  single  trade 
in  a  progressive  country — an  increased  demand  for  capital 
in  it  will  be  promptly  met  by  an  increased  supply  drawn 
from  surrounding  districts  or  trades.  But  if  we  are  con- 
sidering the  whole  world,  or  even  the  whole  of  a  large  country 
as  one  market  for  capital,  we  cannot  regard  the  aggregate 
supply  of  it  as  altered  quickly  and  to  a  considerable  extent 
by  a  change  in  the  rate  of  interest.  For  the  general  fund  of 
capital  is  the  product  of  labour  and  waiting;  and  the  extra 
work,  and  the  extra  waiting,  to  which  a  rise  in  the  rate  of 
interest  would  act  as  an  incentive,  would  not  quickly  amount 
to  much  as  compared  with  the  work  and  waiting,  of  which  the 
1  Book  IV.  ch.  VII. 


SURVEY  OF   DISTRIBUTION  AND  EXCHANGE.         277 

total  existing  stock  of  capital  is  the  result.  An  extensive 
increase  in  the  demand  for  capital  in  general  will  therefore  be 
met  for  a  time  not  by  an  increase  of  supply,  but  by  a  rise  in 
the  rate  of  interest ;  which  will  cause  capital  to  withdraw 
itself  partially  from  those  uses  in  which  its  marginal  utility  is 
lowest.  It  is  only  slowly  and  very  gradually  that  the  rise  in 
the  rate  of  interest  will  increase  the  total  stock  of  capital^ 

§  4.     Land,  by  which  is  here  meant  all  those  agents  of 
production  which  are  supplied  freely  by  nature  in  quantities 
less   than   man   needs,   is  on  a   different   footing   from  man 
himself  and  those  agents  of  production  which  are  ^       . 
made  by  man ;    among  which  are  included  im-  a  different 
provements  made  by  him  on  the  land  itself.     Eor  o°he"agenS 
while  the  supplies  of  all  other  agents  of  produc-  of  production, 
tion   respond   in  various   degrees    and  various   ways   to   the 
demand   for   their   services,    land   makes    no    such   response. 
Thus  if  the  earnings  of  any  class  of  labour  rise,  a  compensatory 
action  tends  to  increase  its  numbers,  or  efficiency,  or  both; 
and,  if  not  to  lower  again  its  rate  of  earnings  per  head,  yet  at 
least  to  enable  them  to  be  paid  from  an  increased  national 
dividend,  and  not  at  the  expense  of  other  agents  of  production. 

1  But  we  must  recollect  that  we  can  properly  speak  of  the  rate  of  interest 
on  any  save  new  investments  of  capital  only  in  a  very  limited  sense.  For 
instance,  we  may  perhaps  estimate  that  a  trade-capital  of  some  seven  thousand 
millions  is  invested  in  the  different  trades  of  the  country  at  about  three  per 
cent.  Net  interest.  But  such  a  method  of  speaking,  though  convenient  and 
justifiable  for  many  purposes,  is  not  accurate.  What  ought  to  be  said  is  that, 
taking  the  rate  of  Net  interest  on  the  marginal  investments,  or  on  the 
investments  of  new  capital  in  each  of  those  trades,  to  be  about  three  per  cent., 
then  the  aggregate  Net  income  rendered  by  the  whole  of  the  trade-capital 
invested  in  the  various  trades  is  such  that,  if  capitalized  at  33  years'  purchase 
(that  is  on  the  basis  of  interest  at  three  per  cent.),  it  would  amount  to  some 
seven  thousand  million  pounds.  For  the  capital  already  invested  in  improving 
land  and  erecting  buildings,  and  in  making  railways  and  machinery,  has  its 
value  determined  by  the  net  income  (or  Quasi-rent)  which  it  will  produce: 
and  if  its  prospective  income-yielding  power  should  diminish,  its  value  would 
fall  accordingly  and  would  be  the  capitalized  value  of  that  smaller  income 
after  allowing  for  depreciation. 


278  BOOK  VI.  CH.  II.  |§  4,  5. 

And  the  same  is  true  as  regards  capital :  but  it  is  not  true  as 
regards  land.  While  therefore  the  value  of  land,  in  common 
with  the  values  of  other  agents  of  production,  is  subject  to 
most  of  those  influences  which  were  discussed  towards  the  end 
of  the  preceding  chapter;  it  does  not  share  the  reflex  influences, 
discussed  in  this  chapter,  which  a  high  rate  of  earnings  exerts 
on  the  supply  of  other  agents  of  production,  and  consequently 
on  their  contributions  to  the  national  dividend,  and  conse- 
quently on  the  real  cost  at  which  their  services  are  purchased 
by  other  agents  of  production \ 

1  The  stock  of  land  (in  an  old  country)  at  any  time  is  the  stock  for  all 
time :  and  when  a  manufacturer  or  cultivator  decides  to  take  in  a  little  more 
land  to  his  business,  he  decides  in  effect  to  take  it  away  from  someone  else's 
business:  though  he  adds  a  little  more  land  to  his  business,  yet  the  nation 
adds  no  land  to  its  business.  In  contrast  with  this,  the  building  an  additional 
floor  on  one  factory  or  putting  an  extra  plough  on  one  farm  does  not  generally 
take  a  floor  from  another  factory  or  a  plough  from  another  farm :  the  nation 
adds  a  factory  floor  or  a  plough  to  its  business  as  the  individual  does  to  his : 
there  is  an  increase  of  the  national  dividend  which  is  to  be  shared  out ;  and  in 
the  long  run  the  increased  earnings  of  the  manufacturer  or  farmer  are  not  as 
a  rule  at  the  cost  of  other  producers.  We  conclude  then  that  the  peculiarity 
in  the  earnings  from  land  and  other  gifts  of  nature  which  arises  from  the  fact 
that  their  stock  cannot  be  increased  by  man,  is  seldom  of  much  importance 
as  regards  the  affairs  of  any  individual  trader,  nor  even  as  regards  market 
fluctuations  of  wages  and  prices;  but  that  it  is  of  vital  importance  to  the 
broad  central  problem  of  normal  distribution. 

It  is  true  that  (at  all  events  if  we  neglect  certain  elements  of  prime  cost) 
the  earnings  of  each  agent  are  for  the  time  of  the  nature  of  a  rent :  but  those 
earnings  react  on  the  supply  of  the  agent,  and  therefore  on  the  amount  and 
therefore  on  the  value  of  the  produce  raised  by  it,  and  therefore  on  the 
demand  for  the  agent  itself,  and  therefore  on  its  earnings ;  and  thus  the  chain 
of  reciprocal  influences  is  complete.  But  the  doctrine  of  rent,  properly  so 
called,  relates  to  those  agents  of  production  of  which  the  supply  cannot  be 
increased,  and  is  unaffected  by  the  earnings  to  be  gained  by  increasing  the 
supply.  And  those  earnings  of  agents  of  production  which  we  have  called 
quasi-rents,  because  they  are  mainly  governed  for  short  periods  by  the  value 
of  the  products,  are  governed  ultimately  by  the  laws  of  supply  at  least  as 
much  as  by  the  laws  of  demand. 

This  may  be  taken  as  a  short  and  provisional  treatment  of  a  problem  of 
some  difficulty.  The  much  fuller  discussion  of  it  in  the  Pnnciples  VI.  ii.  5 
(Ed.  III.)  is  based  upon  a  rather  long  inquiry  as  to  the  relation  of  rent  to 
value  in  Book  V.,  most  of  which  has  been  omitted  in  the  present  volume,  on 
the  ground  that  it  is  difficult  and  is  of  interest  rather  from  an  academic  than 


SURVEY   OF   DISTRIBUTION   AND    EXCHANGE.  279 

§  5.  This  concludes  the  main  body  of  our  preliminary 
discussion  of  distribution  and  exchange.  But  there  are  some 
points  on  which  a  little  more  should  be  said  here.  We  may 
begin  by  studying  the  influence  which  increased  efficiency  and 
increased  earnings  in  one  trade  exert  on  the  condition  of 
others. 

Other  things  being  equal,  the  larger  the  supply  of  any 
agent  of  production,  the  further  will  it  have  to  ^^  increase  in 
push  its  way  into  uses  for  which  it  is  not  specially  t^e  supply  of 
fitted,  and  the  lower  will  be  the  demand-price  neraiiy  lowers 
with  which  it  will  have  to  be  contented  in  those  *"  ^"^^ ' 
uses  in  which  its  employment  is  on  the  verge  or  margin  of  not 
being  found  profitable ;  and,  in  so  far  as  competition  equalizes 
the  price  which  it  gets  in  all  uses,  this  price  will  be  its  price 
for  all  uses.  The  extra  production  resulting  from  the  increase 
in  that  agent  of  production  will  go  to  swell  the  national 
dividend  and  other  agents  of  production  will  benefit  thereby  : 
but  that  agent  itself  will  have  to  submit  to  a  lower  rate 
of  pay. 

For  instance,  if  without  any  other  change  capital  increases 
fast,  the  rate  of  interest  must  fall;  if  without  any  other  change 
the  number  of  those  ready  to  do  any  particular  kind  of  labour 
increases  their  wages  must  fall.     In  either  case  to  the  benefit 
there  will  result  an  increased  proportion,  and  an  noraii^'other 
increased  national  dividend;  in  either  case  the  agents, 
loss  of  one  agent  of  production  must  result  in  a  gain  to  others; 
but  not  necessarily  to  all  others.     Thus  the  opening  up  of  rich 
quarries  of  slate  or  the  increase  in  numbers  or  efficiency  of 
quarrymen,  or  any  other  cause  that  lowered  the  supply-prices 
for  slates,  would  tend  to  improve  the  houses  of  all  classes; 
and  it  would  tend  to  increase  the  demand,   and  raise   the 
demand-price  for  bricklayers'  and  carpenters'  labour;  but  it 

a  practical  point  of  view.  Principles  VI.  i.  6  (Ed.  ni.)  is  given  to  a  highly 
technical  discussion  of  the  relations  between  the  different  kinds  of  surpluses, 
or  so-called  rents  and  quasi-rents. 


280  BOOK  VI.  CH.  II.  §§  5,  6. 

would  be  likely  to  injure  the  makers  of  roofing  tiles  as  pro- 
ducers of  building  materials,  more  than  it  benefited  them  as 
consumers.  The  increase  in  the  supply  of  this  one  agent 
increases  the  demand  for  many  others  by  a  little,  and  for 
some  others  by  much ;  but  for  some  it  lessens  the  demand. 

We  have  already  seen  that,  since  the  wages  of  any  worker, 
Wages  in  re-  Say  for  instance  a  shoemaker,  tend  to  be  equal 
Net°pro°du^ctof  *«  ^'^^  ^^^  product  of  his  labour:  and  since  the 
labour.  wages  of  all  workers  in  the  same  grade  tend  to 

be  equal  to  one  another :  therefore  in  a  state  of  equilibrium 
every  worker  will  be  able  with  the  earnings  of  a  hundred  days' 
labour  to  buy  the  Net  products  of  a  hundred  days'  labour  of 
other  workers  in  the  same  grade  with  himself,  selecting  them 
in  whatever  way  he  chooses,  so  as  to  make  up  that  aggregate 
sum. 

If  the  normal  earnings  of  workers  in  another  grade  were 
half  as  high  again  as  his  own,  the  shoemaker  would  have  to 
spend  three  days'  wages  in  order  to  get  the  Net  product  of 
two  days'  labour  of  a  worker  belonging  to  that  grade;  and 
so  in  proportion. 

Thus,  other  things  being  equal,  every  increase  in  the  Net 
efiiciency  of  labour  in  any  trade,  including  his  own,  will  raise 
in  the  same  proportion  the  real  value  of  that  part  of  his  wages 
which  the  shoemaker  spends  on  the  products  of  that  trade; 
and  other  things  being  equal,  a  rise  in  the  equilibrium  level 
of  the  real  wages  of  the  shoemaker  depends  directly  on,  and 
varies  directly  with,  the  average  increase  in  the  efiiciency  of 
the  trades,  including  his  own,  which  produce  those  things 
on  which  he  spends  his  wages.  Conversely,  if  any  trade 
rejects  an  improvement  by  which  its  efficiency  could  be  in- 
creased ten  per  cent.,  it  inflicts  on  the  shoemaker  an  injury 
measured  by  ten  per  cent,  of  that  part  of  his  wages  which 
he  spends  on  the  products  of  that  trade. 

Again,  the  shoemaker  will  gain  by  anything  that  changes 
the  relative  positions  of  different  grades  in  such  a  way  as  to 


SURVEY  OF  DISTRIBUTION   AND   EXCHANGE.  281 

raise  his  grade  relatively  to  others.  In  particular,  if  tliose 
grades  which  are  occupied  chiefly  with  the  tasks  of  managing 
businesses,  whether  manufacturing,  trading  or  any  other, 
should  receive  so  great  an  influx  from  other  grades,  that  the 
Earnings  of  Management  are  lowered  permanently  relatively 
to  the  earnings  of  manual  work,  there  will  be  a  rise  in  the 
Net  product  of  every  kind  of  manual  labour;  and,  other 
things  being  equal,  the  shoemaker  will  get  more  of  every 
commodity  on  which  he  spends  those  wages  that  represent 
his  own  Net  product. 

The  same  is  true  of  an  increase  in  the  accumulations  of 
capital,  which  causes  a  fall  in  the  rate  of  interest.  It  will 
diminish  the  amount  that  has  to  be  deducted  from  the  gross 
product  of  the  shoemaker's  work,  in  order  to  find  the  Net 
product :  it  will  thus  increase  the  Net  product  of  his  work, 
and  indeed  that  of  workers  in  all  other  grades.  It  will 
increase  the  purchasing  power  of  a  week's  wages  to  him 
whether  he  spends  them  on  the  product  of  his  own  trade  or 
any  other. 

§  6.  The  process  of  Substitution  which  we  have  been 
discussing  is  one  form  of  Competition ;  and  it  may  be  well  to 
emphasize  again  here  the  fact  that,  when  thus  discussing  the 
ultimate  tendencies  of  competition,  we  do  not  assume  that 
competition  is  perfect. 

Perfect  competition  requires  a  perfect  knowledge   of  the 
state  of  the  market;    and  though  no  great  departure  from 
the  actual  facts  of  life  is  involved  in  assuming  ^^  ^^  ^^^^  ^g_ 
this  knowledge  on  the  part  of  dealers  when  we  are  sume  perfect 
considering  the  course  of   business  in  Lombard  freedom  of 
Street,  the  Stock   Exchange,  or  in  a  wholesale  competition. 
Produce   Market;    it  would  be   an  altogether  unreasonable 
assumption  to  make  when  we  are  examining  the  causes  that 
govern  the  supply  of  labour  in  any  of  the  lower  grades  of 
industry.     For  if  a  man  had  sufficient  ability  to  know  every- 
thing about  the  market  for  his  labour,   he  would  have  too 


282  BOOK  VI.  CH.  II.  §§  6,  7. 

much  to  remain  long  in  a  low  grade.  The  older  economists, 
in  constant  contact  as  they  were  with  the  actual  facts  of 
business  life,  must  have  known  this  well  enough ;  but  partly 
for  brevity  and  simplicity,  partly  because  the  term  "free 
competition  "  had  become  almost  a  catchword,  partly  because 
they  had  not  sufficiently  classified  and  conditioned  their 
doctrines,  they  often  seemed  to  imply  that  they  did  assume 
this  perfect  knowledge. 

It  is  therefore  specially  important  to  insist  that  we  do 
not  assume  the  members  of  any  industrial  group  to  be  endowed 
with  more  ability  and  forethought,  or  to  be  governed  by 
motives  other  than  those  which  are  in  fact  normal  to,  and 
would  be  attributed  by  a  well-informed  person  to,  the 
members  of  that  group,  account  being  taken  of  the  general 
conditions  of  time  and  place.  There  may  be  a  good  deal  of 
wayward  and  impulsive  action,  sordid  and  noble  motives 
may  mingle  their  threads  together;  but  there  is  a  constant 
tendency  for  each  man  to  select  such  occupations  for  himself 
and  his  children  as  seem  to  him  on  the  whole  the  most  ad- 
vantageous of  those  that  are  within  the  range  of  his  resources, 
and  of  the  ejfforts  which  he  is  able  and  willing  to  make  in 
order  to  reach  them.  This  brings  us  to  the  subject  of  the 
next  three  chapters,  which  is  a  study  of  the  ways  in  which 
the  adjustment  of  demand  and  supply  relatively  to  labour 
differs  from  its  adjustment  relatively  to  commodities. 

§  7.  The  last  group  of  questions,  which  still  remain  to  be 
discussed,  is  concerned  with  the  relation  of  capital  in  general 
to  wages  in  general.  It  is  obvious  that  though  capital  in 
general  is  constantly  competing  with  labour  for 
the  relations  the  field  of  employment  in  particular  trades ;  yet 
Tabour  in  ^"  since  Capital  itself  is  the  embodiment  of  labour  as 
general.  ^^Q\l  ^g  of  waiting,  the  competition  is  really  between 

some  kinds  of  labour  aided  by  a  good  deal  of  waiting,  and 
other  kinds  of  labour  aided  by  less  waiting.  On  the  one  side, 
for  instance,  are  many  who  make  shoes  by  hand,  and  a  very 


SURVEY  OF  DISTRIBUTION  AND   EXCHANGE.         283 

few  who  make  awls  and  other  simple  implements,  aided  by  a 
little  waiting ;  on  the  other  are  a  relatively  small  number  who 
work  powerful  sewing-machines  which  were  made  by  engineers, 
aided  by  a  good  deal  of  waiting.  There  is  a  real  and  effective 
competition  between  labour  in  general  and  waiting  in  general. 
But  it  covers  a  small  part  of  the  whole  field ;  and  is  of  small 
importance  relatively  to  the  benefits  which  labour  derives 
from  obtaining  cheaply  the  aid  of  capital,  and  therefore  of 
efficient  methods  in  the  production  of  things  that  it  needs. 

For  speaking  generally,  an  increase  in  the  power  and  the 
willingness  to  save,  will  cause  the  services  of  waiting  to  be 
pushed  constantly  further,  so  as  to  obtain  employment  at  a 
rate  of  interest,  which  will  constantly  fall  unless  invention 
opens  new  advantageous  uses  of  roundabout  methods  of  pro- 
duction. In  either  case,  but  especially  in  the  latter,  the 
growth  of  capital  increases  the  national  dividend;  and  thus 
opens  out  new  and  rich  fields  for  the  employment  of  labour  in 
other  directions,  which  more  than  compensate  for  the  partial 
displacement  of  the  services  of  labour  by  those  of  waiting  in 
particular  trades. 

The  increase  in  the  national  dividend  owing  to  the  growth 
of  capital  and  invention  is  certain  to  affect  all  classes  of 
commodities ;  and  to  enable  the  shoemaker,  for  instance,  to 
purchase  with  his  earnings  more  food  and  clothes,  more  and 
better  supplies  of  water,  artificial  light  and  heat, 
travel,  and  so  on.  It  may  be  admitted  that  a  of  capital 
few  improvements  affect  only  commodities  con-  lowers  the 

^  ^  ^  J    ^  marginal 

sumed  by  thp  rich,  in  the  first  instance  at  least ;  charge  for  its 
that  no  part  of  the  corresponding  increase  of  the  real  wages^.^^^ 
national  dividend  goes  directly  to  the  labouring 
classes;  and  that  they  do  not  at  once  gain  anything  to 
compensate  for  the  probable  disturbance  of  some  of  their 
members  in  particular  trades.  But  such  cases  are  rare,  and 
generally  on  a  small  scale :  and  even  in  them  there  is  nearly 
always  some  indirect  compensation.     For  improvements,  de- 


284  BOOK  VI.   CH.   II.   I  7. 

signed  for  the  luxuries  o£  the  rich,  soon  spread  themselves 
to  the  comforts  of  other  classes. 

To  conclude  : — capital  in  general  and  labour  in  general  are 
agents  co-operating  in  the  production  of  the  national  dividend, 
and  drawing  from  it  their  earnings  in  the  measure  of  their 
respective  (marginal)  efficiencies  in  production.  No  doubt 
General  their  mutual  dependence  is  of  the  closest ;  capital 

conclusion.  without  labour  is  dead  :  the  labourer  without  the 
aid  of  his  own  or  someone  else's  capital  would  not  long  be 
alive.  Where  labour  is  energetic,  capital  reaps  a  high  reward 
and  grows  apace ;  and,  thanks  to  capital  and  knowledge,  the 
ordinary  labourer  v  in  the  western  world  is  in  many  respects 
better  fed,  clothed  and  even  housed  than  were  princes  in 
earlier  times.  The  co-operation  of  capital  and  labour  is  as 
essential  as  that  of  the  spinner  of  yarn  and  the  weaver  of 
cloth :  there  is  a  little  priority  on  the  part  of  the  spinner ; 
but  that  gives  him  no  pre-eminence.  The  prosperity  of  each 
is  bound  up  with  the  strength  and  activity  of  the  other; 
though  each  may  gain  temporarily,  if  not  permanently,  a 
somewhat  larger  share  of  the  national  dividend  at  the  expense 
of  the  other. 

In  the  modern  world,  the  employer,  or  undertaker,  who 
may  have  but  little  capital  as  his  own,  acts  as  the  boss  of  the 
great  industrial  wheel.  The  interests  of  owners  of  capital  and 
of  workers  radiate  towards  him  and  from  him  :  and  he  holds 
them  all  together  in  a  firm  grip.  He  will  therefore  take  a 
predominant  place  in  those  discussions  of  fluctuations  of 
employment  and  of  wages,  which  are  deferred  to  the  second 
volume  of  this  treatise ;  and  a  prominent,  though  not  predomi- 
nant, place  in  those  discussions  of  the  secondary  features  in 
the  mode  of  action  of  demand  and  supply  peculiar  to  labour, 
capital  and  land  respectively,  which  will  occupy  the  next  eight 
chapters'. 

1  In  the  latter  part  of  Principles  VI.  ii.  Ed.  iii.  will  be  found  discnssions 
on  several  difficulties  connected  with  the  general  relations  of  cai)ital  and 


SURVEY   OF   DISTRIBUTION   AND   EXCHANGE.  285 

labour.  It  has  always  been  recognized  that  the  position  of  the  working 
classes  is  improved  by  an  increase  of  trade-capital  (i.e.  capital  in  the  narrower 
sense  of  the  term).  But  in  §  10  this  is  extended  to  an  increase  of  general 
wealth:  for  such  an  increase  tends  generally,  though  not  imiversally,  to 
multiply  the  occasions  on  which  the  well-to-do  have  need  of  the  work  of 
others,  and  to  increase  also  the  resources  which  they  can  make  available, 
directly  or  indirectly  for  remunerating  that  work. 

In  §  11  the  doctrine  that  the  earnings  of  labour  depend  on  advances 
made  by  capital  is  examined.  The  ordinary  bargain  between  labour  and 
capital  is  that  the  wage-receiver  gets  command  over  commodities  in  a  form 
ready  for  immediate  consumption,  and  in  exchange  carries  his  employer's 
goods  a  stage  further  towards  being  ready  for  immediate  consumption.  But 
while  this  is  true  of  most  employees,  it  is  not  true  of  those  who  finish  the 
processes  of  production.  For  instance,  those  who  put  together  and  finish 
watches,  give  to  their  employers  far  more  commodities  in  a  form  ready  for 
immediate  consumption,  than  they  obtain  as  wages.  And  if  we  take  one 
season  of  the  year  with  another,  so  as  to  allow  for  seed  and  harvest  time,  we 
find  that  workmen  as  a  whole  hand  over  to  their  employers  more  finished 
commodities  than  they  receive  as  wages.  There  is  however  a  rather  forced 
sense  in  which  we  may  perhaps  be  justified  in  saying  that  the  earnings  of 
labour  depend  upon  advances  made  to  labour  by  capital :  for  to  say  nothing 
of  machinery  and  factories,  of  ships  and  railroads — the  houses  loaned  to 
workmen,  and  even  the  raw  materials  in  various  stages  which  will  be  worked 
up  into  commodities  consumed  by  them,  represent  a  far  greater  provision  of 
capital  for  their  use  than  the  equivalent  of  the  advances  which  they  make  to 
the  capitalist,  even  when  they  work  for  a  month  for  him  before  getting  any 
wages. 

During  the  great  French  wat  English  industries  had  been  sustained,  and 
England's  high  place  among  nations  had  been  preserved,  largely  by  aid  of  her 
vast  stock  of  wealth,  an  exceptionally  large  part  of  which  was  in  the  form  of 
trade-capital.  This  directed  attention  to  the  dependence  of  labour  on  capital : 
and  some  economists  exaggerated  this  dependence  so  far  as  to  say  that  the 
amount  of  wages  was  limited  by  the  amount  of  capital.  But  that  statement 
cannot  be  defended;  at  best  it  is  but  a  slovenly  way  of  talking.  It  has 
suggested  to  some  people  the  notion  that  the  total  amount  of  wages  that 
could  be  paid  in  a  country  in  the  course  of,  say  a  year,  was  a  fixed  sum.  If 
by  the  threat  of  a  strike,  or  in  any  other  way,  one  body  of  workmen  got 
an  increase  of  wages,  they  would  be  told  that  in  consequence  other  bodies 
of  workmen  must  lose  an  amount  exactly  equal  in  the  aggregate  to  what  they 
had  gained.  Those  who  have  said  this,  have  perhaps  thought  of  agricultural 
produce,  which  has  but  one  harvest  in  the  year.  If  all  the  wheat  raised  at 
one  harvest  is  sure  to  be  eaten  before  the  next,  and  if  none  can  be  imported, 
then  it  is  true  that  if  anyone's  share  of  the  wheat  is  increased,  there  will  be 
just  so  much  less  for  others  to  have.  But  this  does  not  justify  the  statement 
that  the  amount  of  wages  payable  in  a  country  is  fixed  by  the  capital  in  it,  a 
doctrine  which  has  been  called  the  vulgar  form  of  the  Wages  Fund  theory. 

That  theory  may  be  stated  in  a  less  incorrect  form.  It  may  run  thus. 
Firstly,  the  aggregate  amount  of  wages  is  the  same  as  the  aggregate  capital 


286  BOOK   VI.    CH.    II.    NOTE. 

which  is  devoted  to  paying  them;  secondly,  the  division  of  capital  into  that 
which  is  devoted  to  supporting  lahour  and  that  which  takes  the  forms  of 
machinery  and  raw  material,  is  governed  by  the  state  of  the  arts  of  produc- 
tion ;  and  therefore,  thirdly,  the  aggregate  amount  of  wages  is  governed  by  the 
aggregate  stock  of  capital.  The  first  of  these  propositions  is  indisputable 
if  we  choose  to  speak  of  everything  spent  on  paying  wages  as  capital:  though 
it  seems  better,  in  accordance  with  what  has  just  been  said,  to  regard  the 
earnings  of  labour  as  a  part  of  the  constant  flow  of  the  national  dividend. 
But  the  second  proposition  is  not  true :  the  distribution  of  the  resources  of  a 
nation  between  commodities  which  will  support  labour  on  the  one  hand,  and 
I  machinery,  raw  material,  &c.  on  the  other,  does  not  depend  simply  upon  the 
state  of  the  arts  of  production :  it  depends  partly  (see  above,  ch.  i.  §  7)  on 
whether  fit^the  current  ^^te.  nf  intp.rest  it  is  more  profitable  to  employ  hand 
labouiL,Q31JBachi|iaJabour :  and  this  depends  partly  on  the  manner  in  which 
the  national  dividend  is  distributed  between  capital  and  labour :  and  that  is 
the  very  point  under  discussion.  When  this  last  stage  is  filled  in,  the  Wages 
Fund  theory  has  lost  its  distinctive  features;  and  we  are  brought  to  that 
account  of  Distribution  which  is  given  in  the  text,  according  to  which  the 
supply  of  labour  and  of  capital,  the  rate  of  wages  and  the  rate  of  interest 
/mutually  govern  one  another  in  the  long  run,  subject  to  the  influence  of  the 
(richness  of  nature's  resources  and  the  progress  made  by  the  arts  of  produc- 
tion. We  say  in  the  long  run,  because  there  is  no  relation  between  the  stock 
of  capital  in  a  country  and  the  rate  of  wages  payable  during  short  periods. 
For  a  well-organized  strike  at  a  critical  juncture  may  force  from  the  employer 
for  a  short  time,  more  than  the  whole  value  of  his  output  after  paying  for  raw 
material  during  that  time;  and  thus  make  his  gross  profits  for  the  time  a 
negative  quantity.  And  indeed  the  theory  of  wages,  whether  in  its  older  or 
newer  form,  has  no  direct  bearing  on  the  issue  of  any  particular  struggle  in 
the  labour  market:  that  depends  on  the  relative  strength  of  the  competing 
parties.  But  it  has  much  bearing  on  the  general  policy  of  the  relation  of 
capital  to  labour ;  for  it  indicates  what  policies  do,  and  what  do  not,  carry  in 
themselves  the  seeds  of  their  own  ultimate  defeat;  what  policies  can  be 
maintained  aided  by  suitable  organization,  and  what  pohcies  will  ultimately 
render  either  side  weak,  however  weU  organized. 

The  proposition  that  industry  is  limited  hy  capital,  was  often  interpreted 

so  as  to  make  it  practically  convertible  with  the  Wages  Fund  theory.    It 

can  be  explained  so  as  to  be  true :   but  a  similar  explanation  would  make 

the  statement  that  "capital  is  limited  by  industry"  equally  true.    Itjs_kue 

/  in  the  sense  that  the  aggregate  employment  of  labour  oanofit  generally  be  in- 

I  creased  by  preventing  people,  by  Protective  duties  or  in  other  ways,  from 

I  satisfying  their  wants  in  that  manner  which  they  would  prefer. 

Again,  Mill's  Proposition  that  Demand  for  commodities  is  not  demand  for 
labour  expresses  his  meaning  badly.  It  really  means  that  those  who  purchase 
any  particular  commodities  do  not  generally  supply  the  capital  that  is  re- 
quired to  aid  and  support  the  labour  Avhich  produces  those  commodities:  they 
merely  divert  capital  and  employment  from  other  trades  to  that  for  the 
products  of  which  they  make  increased  demand. 


CHAPTER   III. 

DEMAND   AND   SUPPLY   IN   RELATION   TO   LABOUR.      REAL 
AND   NOMINAL   EARNINGS. 

§    1.     We   have   still   further   to   develop   the  discussion 
of  the  general  theory  of  equilibrium  of  demand  ^^^^  scope  of 
and  supply  given  in  the  last  Book.     We  there  the  present  and 
left  on  one  side,  as  far  as  might  be,  all  considera-  seven 
tions   turning   on  the   special  qualities  and  in-  Chapters, 
cidents  of  the  agents  of  production.     These  deficiencies  will 
be  made  good  in  the  following  three  groups  of  chapters  on 
Demand  and  Supply  in  relation  to  Labour,  to  Capital  and 
Business  Power,  and  to  Land,  respectively. 

When  watching  the  action  of  demand  and  supply  with 
regard  to  a  material  commodity,  we  are  constantly  met  by  the 
difficulty  that  two  things  which  are  being  sold  under  the  same 
name  in  the  same  market,  are  really  not  of  the  same  quality 
and  not  of  the  same  value  to  the  purchasers.  Or,  if  the 
things  are  really  alike,  they  may  be  sold  even  in  the  face  of 
the  keenest  competition  at  prices  which  are  nominally  dif- 
ferent, because  the  conditions  of  sale  are  not  the  same :  for 
instance,  a  part  of  the  expense  or  risk  of  delivery  which  is 
borne  in  the  one  case  by  the  seller  may  in  the  other  be 
transferred  to  the  buyer.  But  difficulties  of  this  kind  are 
much  greater  in  the  case  of  labour  than  of  material  commodi- 
ties :  the  true  price  that  is  paid  for  labour  often  differs  widely, 
and  in  ways  that  are  not  easily  traced,  from  that  which  is 
nominally  paid. 


288  BOOK  VI.   CH.  III.   §  1. 

The  earnings  (or  wages)  which  a  person  gets  in  any  given 
time,  such  as  a  day,  a  week,  or  a  year,  may  be  called  his 
Time-  TiME-EARNiNGS  (or  TiME-WAGEs):  and  we  may  then 

earnings.  regard   competition,   or   to  speak  more  exactly, 

economic  freedom  and  enterprise,  as  tending  to  make  Time- 
earnings  in  occupations  of  equal  difficulty  and  in  neighbouring 
places  (not  equal,  but)  proportionate  to  the  efficiency  of  the 
workers. 

But  this  phrase,  "the  efficiency  of  the  workers,"  has  some 
Payment  by  ambiguity.  When  the  payment  for  work  of  any 
Piece-work.  j^-jj^^j  jg  apportioned  to  the  quantity  and  quality 
of  the  work  turned  out,  it  is  said  that  uniform  rates  of 
Piece-work  wages  are  being  paid ;  and  if  two  persons  work 
under  the  same  conditions  and  with  equally  good  appliances, 
they  are  paid  in  proportion  to  their  efficiencies  when  they 
receive  piece-work  wages  calculated  by  the  same  lists  of  prices 
for  each  several  kind  of  work.  If  however  the  appliances  are 
not  equally  good,  a  uniform  rate  of  piece-work  wages  gives 
results  disproportionate  to  the  efficiency  of  the  workers.  If, 
for  instance,  the  same  lists  of  piece-work  wages  were  used  in 
Lancashire  Cotton  Mills  supplied  with  old-fashioned  machinery, 
as  in  those  which  have  the  latest  improvements,  the  apparent 
equality  would  represent  a  real  inequality.  The  more  effective 
competition  is,  and  the  more  perfectly  economic  freedom  and 
enterprise  are  developed,  the  more  surely  will  the  lists  be 
higher  in  the  mills  that  have  old-fashioned  machinery  than  in 
the  others. 

In  order  therefore  to  give  its  right  meaning  to  the  state- 
ment that  economic  freedom  and  enterprise  tend  to  equalize 
wages  in  occupations  of  the  same  difficulty  and  in  the  same 
neighbourhood,  we  require  the  use  of  a  new  term ;  and  we 
may  find  it  in  Efficiency-wages,  or  more  broadly  Efficiency- 
Efficiency-  EARNINGS;  that  is,  earnings  measured,  not  as 
earnmgs.  Time-earnings   are    with   reference   to   the   time 

spent  in  earning  them ;    and  not  as  piece-work  earnings  are 


DEMAND   AND   SUPPLY   IN   RELATION   TO   LABOUR.     289 

with  reference  to  the  amount  of  output  resulting  from  the 
work  by  which  they  are  earned ;  but  with  reference  to  the 
severity  of  the  task  which  was  imposed  on  the  worker ;  or,  to 
get  at  the  same  result  by  another  route,  the  exertion  of 
ability  and  efficiency  required  of  him.  For  competition  tends 
to  make  the  earnings  got  by  two  individuals  of  unequal  effi- 
ciency in  any  given  time,  say,  a  day  or  a  year,  not  equal, 
but  unequal;  and,  in  like  manner,  it  tends  not  to  equalise, 
but  to  render  unequal  the  average  weekly  wages  in  two 
districts  in  which  the  average  standards  of  efficiency  are 
unequal.  Given  that  the  average  strength  and  energy  of  the 
working-classes  are  higher  in  the  North  of  England  than  in 
the  South,  it  then  follows  that  the  more  completely  "  compe- 
tition makes  things  find  their  own  level,"  the  more  certain  is 
it  that  average  weekly  wages  will  be  higher  in  the  North  than 
in  the  South. 

The  tendency  then  of  economic  freedom  and  enterprise 
(or  in  more  common  phrase,  of  competition)  to  cause  every 
one's  earnings  to  find  their  own  level,  is  a  tendency  to 
equality  of  Efficiency -earnings  in  the  same  district.  This 
tendency  will  be  the  stronger,  the  greater  is  the  mobility  of 
labour,  the  less  strictly  specialised  it  is,  the  more  keenly 
parents  are  on  the  look  out  for  the  most  advantageous  occu- 
pations for  their  children,  the  more  rapidly  they  are  able  to 
adapt  themselves  to  changes  in  economic  conditions,  and 
lastly  the  slower  and  the  less  violent  these  changes  are. 

This  statement  of  the  law  is,  however,  still  subject  to  a 
slight  correction.    For  we  have  hitherto  supposed  Low-waged 
that  it  is  a  matter  of  indifierence  to  the  employer  raiiy"dearf  If  ^" 
whether  he  employs  few  or  many  people  to  do  a  working  with 

^     >'  ^  ^    r      r  ^  expensive 

piece  of  work  provided  his  total  wages-bill  for  machinery, 
the  work  is  the  same.  But  that  is  not  the  case.  Those 
workers  who  earn  most  in  a  week  when  paid  at  a  given  rate 
for  their  work,  are  those  who  are  cheapest  to  their  employers 
(and  ultimately  to  the  community,  unless  indeed  they  over- 
M.  19 


290  BOOK  VI.  CH.  III.  §§  1,  2. 

strain  themselves,  and  work  themselves  out  prematurely). 
For  they  use  only  the  same  amount  of  fixed  capital  as  their 
slower  fellow  workers ;  and,  since  they  turn  out  more  work, 
each  part  of  it  has  to  bear  a  less  charge  on  this  account.  The 
Prime  costs  are  equal  in  the  two  cases ;  but  the  Total  cost  of 
that  done  by  those  who  are  more  efficient,  and  get  the  higher 
Time-wages,  is  lower  than  that  done  by  those  who  get  the 
lower  Time-wages  at  the  same  rate  of  piece-work  payment. 

This  point  is  seldom  of  much  importance  in  out-of-door 
work,  where  there  is  abundance  of  room,  and  comparatively 
little  use  of  expensive  machinery ;  for  then,  except  in  the 
matter  of  superintendence,  it  makes  very  little  difference  to 
the  employer,  whose  wages-bill  for  a  certain  piece  of  work  is 
£100,  whether  that  sum  is  divided  between  twenty  efficient 
or  thirty  inefficient  workers.  But  when  expensive  machinery 
is  used  which  has  to  be  proportioned  to  the  number  of 
workers,  the  employer  would  often  find  the  total  cost  of  his 
goods  lowered  if  he  could  get  twenty  men  to  turn  out  for 
a  wages-bill  of  £50  as  much  work  as  he  had  previously  got 
done  by  thirty  men  for  a  wages-bill  of  £40.  In  all  matters 
of  this  kind  the  leadership  of  the  world  lies  with  America, 
and  it  is  not  an  uncommon  saying  there  that  he  is  the  best 
business  man  who  contrives  to  pay  the  highest  wages. 

The  corrected  law  then  stands  that  the  tendency  of  eco- 
nomic freedom  and  enterprise  is  generally  to  equalize  efficiency- 
earnings  in  the  same  district :  but  where  much  expensive  fixed 
capital  is  used,  it  would  be  to  the  advantage  of  the  employer 
to  raise  the  Time-earnings  of  the  more  efficient  workers  more 
than  in  proportion  to  their  efficiency. 

Of  course  this  tendency  is  liable  to  be  opposed  by  special 
customs  and  institutions,  and,  in  some  cases,  by  trades-union 
regulations. 

§  2.  Thus  much  with  regard  to  estimates  of  the  work  for 
which  the  earnings  are  given :  but  next  we  have  to  consider 
more  carefully  the  facts,  that  in  estimating  the  real  earnings 


DEMAND  AND  SUPPLY  IN  RELATION  TO  LABOUR.   291 

of  an  occupation  account  must  be  taken  of  many  things 
besides  its  money  receipts,  and  that  on  the  other  side  of  the 
account  we  must  reckon  for  many  incidental  disadvantages 
besides  those  directly  involved  in  the  strain  and  stress  of  the 
work. 

As  Adam  Smith  vsays,  "  the  Real  wages  of  labour  may  be 
said  to  consist  in  the  quantity  of  the  necessaries  _,    , 

T-  •/  ^  ^         Real  wages 

and  conveniences  of   life  that  are  given  for  it ;  and  Nominal 

its  Nominal  wages  in  the  quantity  of  money wages. 

The  labourer  is  rich  or  poor,  is  well  or  ill  rewarded,  in  pro- 
portion to  the  real,  not  to  the  nominal,  wages  of  his  labour \" 
But  the  words  "  that  are  given  for  it "  must  not  be  taken  to 
apply  only  to  the  necessaries  and  conveniences  that  are  directly 
provided  by  the  purchaser  of  the  labour  or  its  products ;  for 
account  must  be  taken  also  of  the  advantages  which  are 
attached  to  the  occupation,  and  require  no  special  outlay  on 
his  part. 

In  endeavouring  to  ascertain  the  Real  wages  of  an  occu- 
pation at  any  place  or  time,  the  first  step  is  to  allow  for 
variations  in  the  purchasing  power  of  the  money  in  which 
Nominal  wages  are  returned ;  and  especially  we  must  take 
account  of  those  things  on  which  the  class  of  labour  in  question 
spends  most  of  its  wages.  For  instance,  the  prices  of  velvet, 
of  operatic  entertainments  and  scientific  books  are  not  very 
important  to  the  lower  ranks  of  industry :  but  a  fall  in  the 
price  of  bread  or  of  shoe  leather  affects  them  much  more 
than  it  does  the  higher  ranks. 

Next,  allowance  must  be  made  for  all  trade  expenses.  Thus 
from  the  barrister's  gross  income  we  must  deduct  the  rent  of 
his  office  and  the  salary  of  his  clerk  :  from  the  carpenter's 
gross  income  we  must  deduct  the  expenses  which  he  incurs  for 
tools ;  and  when  estimating  the  earnings  of  quarrymen  in  any 
district  we  must  find  out  whether  local  custom  assigns  the 

1  Wealth  of  Nations,  Book  i.  Ch.  v. 

19—2 


292  BOOK  vi.  CH.  III.  §§  2,  3. 

expenses  of  tools  and  blasting  powder  to  them  or  their  em- 
ployers. And  on  the  other  hand  we  must  reckon  in  all  the 
allowances,  and  privileges,  such  as  those  of  a  cottage  rent 
free  or  at  a  low  rent,  and  of  course  free  board  and  lodging 
when  they  are  given  \ 

§  3.  Next  we  have  to  take  account  of  the  influences 
Uncertainty  exerted  on  the  real  rate  of  earnings  in  an  occupa- 
of  success.  ^JQj^  ijy  ^j^Q  uncertainty  of  success  and  the  in- 
constancy of  occupation  in  it. 

We  should  obviously  start  by  taking  the  earnings  of  an 
occupation  as  the  average  between  those  of  the  successful 
and  unsuccessful  members  of  it ;  taking  care  to  get  the  true 
average'^.  We  thus  obviate  the  necessity  of  making  any 
separate  allowance  for  insurance  against  risk ;  but  account 
remains  to  be  taken  of  the  evil  of  uncertainty.  For  there  are 
many  people  of  a  sober  steady-going  temper,  who  like  to 
know  what  is  before  them,  and  who  would  far  rather  have  an 
appointment  which  offered  a  certain  income  of  say  £4tOO  a 
year  than  one  which  was  not  unlikely  to  yield  £600,  but  had 
an  equal  chance  of  affording  only  .£200.  Uncertainty,  there- 
fore, which  does  not  appeal  to  great  ambitions  and  lofty 
aspirations,  has  special  attractions  for  very  few ;  while  it  acts 
as  a  deterrent  to  many  of  those  who  are  making  their  choice 
of  a  career.  And  as  a  rule  the  certainty  of  moderate  success 
attracts  more  than  an  expectation  of  an  uncertain  success  that 
has  an  equal  actuarial  value. 

But   on   the  other  hand,   if   an  occupation  offers  a  few 

1  They  should  be  counted  at  their  value  to  those  who  receive  them,  not  at 
their  cost  to  those  who  give  them.  This  point  and  the  evils  of  the  Truck 
system  are  dwelt  on  in  Principles  VI.  m.  5. 

2  If  the  average  earnings  of  those  who  are  successful  are  £2000  a  year,  and 
of  those  who  are  unsuccessful  are  £400  a  year,  the  average  of  the  whole  will 
be  £1200  a  year  if  the  former  group  is  as  large  as  the  latter ;  but  if,  as  is 
perhaps  the  case  with  barristers,  the  unsuccessful  are  ten  times  as  numerous 
as  the  successful,  the  true  average  is  but  £550.  And  further,  many  of  those 
who  have  failed  most  completely,  are  likely  to  have  left  the  occupation 
altogether,  and  thus  to  escape  being  counted. 


DEMAND  AND   SUPPLY  IN   RELATION  TO  LABOUR.     293 

extremely  high  prizes,  its  attractiveness  is  increased  out  of 
all  proportion  to  their  aggregate  value.  For  this  there  are 
two  reasons.  The  first  is  that  young  men  of  an  adventurous 
disposition  are  more  attracted  by  the  prospects  of  great  suc- 
cess than  they  are  deterred  by  the  fear  of  failure;  and  the 
second  is  that  the  social  rank  of  an  occupation  depends  more 
on  the  highest  dignity  and  the  best  position  which  can  be 
attained  through  it  than  on  the  average  good  fortune  of  those 
engaged  in  it. 

"We  may  next  consider  the  influence  which  inconstancy  of 
employment  exerts  on  wages.  It  is  obvious  that  irregularity  of 
in  those  occupations,  in  which  employment  is  employment, 
irregular,  the  pay  must  be  high  in  proportion  to  the  work 
done:  the  medical  man  and  the  shoeblack  must  each  receive 
when  at  work  a  pay  which  covers  a  sort  of  retaining  fee  for 
the  time  when  he  has  nothing  to  do.  If  the  advantages  of 
their  occupations  are  in  other  respects  equal,  and  their  work 
equally  difficult,  the  bricklayer  when  at  work  must  be  paid  a 
higher  rate  than  the  joiner,  and  the  joiner  than  the  railway 
guard.  For  work  on  the  railways  is  nearly  constant  all  the 
year  round;  while  the  joiner  and  the  bricklayer  are  always  in 
danger  of  being  made  idle  by  slackness  of  trade,  and  the 
bricklayer's  work  is  further  interrupted  by  frost  and  rain. 
The  ordinary  method  of  allowing  for  such  interruptions  is  to 
add  up  the  earnings  for  a  long  period  of  time  and  to  take  the 
average  of  them;  but  this  is  not  quite  satisfactory  unless  we 
assume  that  the  rest  and  leisure,  which  a  man  gets  when  out 
of  employment,  are  of  no  service  to  him  directly  or  indirectly. 

Next  we  must  take  account  of  the  opportunities  which  a 
man's  surroundings  may  afford  of  supplementing  ^ 

the  earnings  which  he  gets  in  his  chief  occupa-      mentary 
tion,  by  doing  work  of  other  kinds.     And  ac-     «*™*"e^- 
count  may  need  to  be  taken  also  of  the  opportunities  which 
these  surroundings  offer  for  the  work  of  other  members  of  his 
family. 


294  BOOK  YI.   CH.  III.   §  4. 

§  4.  Thus  then  the  attractiveness  of  a  trade  depends  on 
many  other  causes  besides  the  difficulty  and 
tivenessofa  strain  of  the  work  to  be  done  in  it  on  the  one 
not  on  i^ts^"  ^  hand,  and  the  money-earnings  to  be  got  in  it  on 
money-earn-  the  other.  And  when  the  earnings  in  any  occu- 
NetAd-  pation  are  regarded  as  acting  on  the  supply  of 

vantages ;  labour  in  it,  or  when  they  are  spoken  of  as  being 

its  supply  price,  we  must  always  understand  that  the  term  is 
only  used  as  a  short  expression  for  its  Net  Advantages.  We 
must  take  account  of  the  facts  that  one  trade  is  healthier  or 
cleanlier  than  another,  that  it  is  carried  on  in  a  more  whole- 
some or  pleasant  locality,  or  that  it  involves  a  better  social 
position;  as  is  instanced  by  Adam  Smith's  well-known  remark 
that  the  aversion  which  many  people  have  for  the  work  of  a 
butcher,  and  to  some  extent  for  the  butcher  himself,  raises 
the  earnings  of  butchers  above  those  of  bakers. 

Of  course  individual  character  will  always  assert  itself  in 
subject  to  dif-  estimating  particular  advantages  at  a  high  or  a 
ferences  of  low  rate.  Some  persons  for  instance  are  so  fond 
tween  indi-  of  having  a  cottage  to  themselves  that  they  prefer 
viduais,  living   on   very   low   wages   in   the    country    to 

getting  much  higher  wages  in  the  town;  while  others  are  in- 
different as  to  the  amount  of  house-room  they  get,  and  are 
willing  to  go  without  the  comforts  of  life  provided  they  can 
procure  what  they  regard  as  its  luxuries.  Personal  peculi- 
arities, such  as  these,  prevent  us  from  predicting  with  cer- 
tainty the  conduct  of  particular  individuals.  But  if  each 
advantage  and  disadvantage  is  reckoned  at  the  average  of  the 
money  values  it  has  for  the  class  of  people  who  would  be 
likely  to  enter  an  occupation,  or  to  bring  up  their  children  to 
it,  we  shall  have  the  means  of  estimating  roughly  the  relative 
strengths  of  the  forces  that  tend  to  increase  or  diminish  the 
supply  of  labour  in  that  occupation  at  the  time  and  place  which 
we  are  considering.  For  it  cannot  be  too  often  repeated  that 
grave  errors  are  likely  to  result  from  taking  over  an  estimate 


DEMAND   AND   SUPPLY   IN    RELATION   TO   LABOUR.      295 

of  this  kind  based  on  the  circumstances  of  one  time  and  place, 
and  applying  it  without  proper  precaution  to  those  of  another 
time  or  another  place. 

Lastly,  the  disagreeableness  of  work  seems  to  have  very 
little  effect  in  raising  wages,  if  it  is  of  such  a       , ,   ^ 

o  o     '  _  and  between 

kind  that  it  can  be  done  by  those  whose  indus-  industrial 
trial  abilities  are  of  a  very  low  order.  For  the  ^^^ 
progress  of  sanitary  science  has  kept  alive  many  people  who 
are  unfit  for  any  but  the  lowest  grade  of  work.  They  compete 
eagerly  for  the  comparatively  small  quantity  of  work  for 
which  they  are  fitted,  and  in  their  urgent  need  they  think 
almost  exclusively  of  the  wages  they  can  earn:  they  cannot 
afford  to  pay  much  attention  to  incidental  discomforts  and 
indeed  the  influence  of  their  surroundings  has  prepared  many 
of  them  to  regard  the  dirtiness  of  an  occupation  as  an  evil  of 
but  minor  importance. 

And  from  this  arises  the  strange  and  paradoxical  result 
that  the  dirtiness  of  some  occupations  is  a  cause  An  evil 
of  the  lowness  of  the  wages  earned  in  them.  For  paradox, 
employers  find  that  this  dirtiness  adds  much  to  the  wages 
they  would  have  to  pay  to  get  the  work  done  by  skilled  men 
of  high  character  working  with  improved  appliances;  and  so 
they  often  adhere  to  old  methods  which  require  only  unskilled 
workers  of  but  indifferent  character,  and  who  can  be  hired  for 
low  (Time-)  wages,  because  they  are  not  worth  much  to  any 
employer.  There  is  no  more  urgent  social  need  than  that 
labour  of  this  kind  should  be  made  scarce  and  dear. 


CHAPTER  IV. 

DEMAND    AND    SUPPLY    IN    RELATION    TO    LABOUR, 
CONTINUED. 

§  1.  In  the  last  chapter  we  discussed  the  difficulties  of  as- 
Many  pecuH-  certaining  the  real  as  opposed  to  the  nominal  price 
acti'on  of  ^  ^^  labour.  But  now  we  have  to  study  some  peculi- 
demand  and       aritics  in  the  action  of  the  forces  of  demand  and 

supply  with 

regard  to  la-  Supply  with  regard  to  labour  which  are  of  a  more 
muia^^e'in'  vital  character ;  since  they  affect  not  merely  the 
their  effects.      form,  but  also  the  substance  of  that  action. 

We  shall  find  that  the  influence  of  many  of  these  pecu- 
liarities is  not  at  all  to  be  measured  by  their  first  and  most 
obvious  effects.  For  flaws  in  the  industrial  arrangements  of 
society  may  be  divided  into  two  classes  according  as  their 
effects  are,  or  are  not  cumulative ;  that  is  as  they  do  or  do 
not  end  with  the  evil  by  which  they  were  caused,  and  do  or 
do  not  have  the  indirect  effect  of  lowering  the  character  of 
the  workers  or  of  hindering  it  from  becoming  stronger.  For 
these  last  cause  further  weakness  and  further  suffering,  which 
again  in  their  turn  cause  yet  further  weakness  and  further 
suffering,  and  so  on  cumulatively;  and  conversely,  high  earn- 
ings, and  a  strong  character,  lead  to  greater  strength  and 
higher  earnings,  which  again  lead  to  still  greater  strength  and 
still  higher  earnings,  and  so  on  cumulatively  \ 

1  There  is  a  similar  distinction  between  the  cumulative  and  non-cumulative 
effects  of  custom.     See  Principles  VI.  iv.  1. 


DEMAND  AND  SUPPLY   IN   RELATION   TO   LABOUR.       297 

§  2.     The   first   point   to  which  we   have    to   direct   our 
attention  is  the  fact  that  human  agents  of  pro-  First  peculi- 
duction  are  not  bought  and  sold  as  machinery  ^irker^seiis 
and   other   material   agents   of    production   are.  his  work,  but 
The  worker  sells  his  work,  but  he  himself  remains  pgrty  in  him- 
his  own  property :  those  who  bear  the  expenses  *^^^' 
of  rearing  and  educating  him  receive  but  very  little  of  the 
price  that  is  paid  for  his  services  in  later  years*. 

Whatever  deficiencies  the  modern  methods  of  business 
may  have,  they  have  at  least  this  virtue,  that  he  consequently 
who  bears  the  expenses  of  production  of  material  ^^^  investment 
goods,  receives  the  price  that  is  paid  for  them,  him  is  limited 
He  who  builds  factories  or  steam-engines  or  the^fo^r™^^"^' 
houses,  or  rears  slaves,  reaps  the  benefit  of  all  thought,  and 

,  .  1  •   1      - 1  T  1  1        the  unselfish- 

net   services  which  they  render   so  long  as  he  nessofhis 

keeps  them  for  himself ;  and  when  he  sells  them  Parents. 

he  gets   a  price  which  is  the  estimated  net  value  of   their 

future  services.     The  stronger  and  the  more  efficient  he  makes 

them,  the  better  his  reward;   and  therefore  he  extends  his 

outlay  until  there  seems  to  him  no  good  reason  for  thinking 

that  the  gains  resulting  from  any  further  investment  would 

compensate  him.    But  the  investment  of  capital  in  the  rearing 

and  early  training  of  the  workers  of  England  is  limited  by 

the  resources  of  parents  in  the  various  grades  of  society,  by 

their  power  of  forecasting  the  future,  and  by  their  willingness 

to  sacrifice  themselves  for  the  sake  of  their  children. 

This  evil  is  indeed  of  comparatively  small  importance  with 

regard  to  the  higher  industrial  grades.     For  in  those  grades 

most  people  distinctly  realize  the  future,  and  "  discount  it  at 

a   low   rate   of   interest."     They  exert   themselves   much   to 

select  the  best  careers  for  their  sons,  and  the  best  trainings 

for  those  careers ;  and  they  are  generally  willing  and  able  to 

incur   a  considerable  expense  for  the  purpose.     The  profes- 

1  In  this  and  the  next  two  Sections  we  shall  be  working  close  to  the  ground 
of  Book  IV.  Ch.  VI. 


298  BOOK  VI.  OH.  IV.  §1  2,  3. 

sional  classes  especially,  while  generally  eager  to  save  some 
capital  for  their  children,  are  even  more  on  the  alert  for 
opportunities  of  investing  it  in  them.  And  whenever  there 
occurs  in  the  upper  grades  of  industry  a  new  opening  for 
which  an  extra  and  special  education  is  required,  the  future 
gains  need  not  be  very  high  relatively  to  the  present  outlay, 
in  order  to  secure  a  keen  competition  for  the  post. 

But  in  the  lower  ranks  of  society  the  evil  is  great.  For 
Disadvantages  the  slendcr  means  and  education  of  the  parents, 
of  poor '^^^  and  the  comparative  weakness  of  their  power  of 
parents.  distinctly  realizing  the  future,  prevent  them  from 

investing  capital  in  the  education  and  training  of  their 
children  with  the  same  free  and  bold  enterprise  with  which 
capital  is  applied  to  improving  the  machinery  of  any  well- 
managed  factory.  Many  of  the  children  of  the  working- 
classes  are  imperfectly  fed  and  clothed ;  they  are  housed  in  a 
way  that  promotes  neither  physical  nor  moral  health  ;  they 
receive  a  school  education  which,  though  in  modern  England 
it  may  not  be  very  bad  so  far  as  it  goes,  yet  goes  only  a  little 
way ;  they  have  few  opportunities  of  getting  a  broader  view 
of  life  or  an  insight  into  the  nature  of  the  higher  work  of 
business,  of  science  or  of  art ;  they  meet  hard  and  exhaustive 
toil  early  on  the  way,  and  for  the  greater  part  keep  to  it  all 
their  lives.  At  last  they  go  to  the  grave  carrying  with  them 
undeveloped  abilities  and  faculties ;  which,  if  they  could  have 
borne  full  fruit,  would  have  added  to  the  material  wealth  of 
the  country — to  say  nothing  of  higher  considerations — many 
times  as  much  as  would  have  covered  the  expense  of  providing 
adequate  opportunities  for  their  develojDment. 

But  the  point  on  which  we  have  specially  to  insist  now  is 
This  evil  is  ^^at  this  evil  is  cumulative.  The  worse  fed  are 
cumulative.  ^j^^  children  of  one  generation,  the  less  will  they 
earn  when  they  grow  up,  and  the  less  will  be  their  power  of 
providing  adequately  for  the  material  wants  of  their  children ; 
and  so  on :  and  again,  the  less  fully  their  own  faculties  are 


DEMAND   AND   SUPPLY   IN    RELATION   TO   LABOUR.      299 

developed,  the  less  will  they  realize  the  importance  of  develop- 
ing the  best  faculties  of  their  children,  and  the  less  will  be 
their  power  of  doing  so.  And  conversely  any  change  that 
awards  to  the  workers  of  one  generation  better  earnings, 
together  with  better  opportunities  of  developing  their  best 
qualities,  will  increase  the  material  and  moral  advantages 
which  they  have  the  power  to  offer  to  their  children :  while 
by  increasing  their  own  intelligence,  wisdom  and  forethought, 
it  will  also  to  some  extent  increase  their  willingness  to 
sacrifice  their  own  pleasures  for  the  well-being  of  their 
children ;  though  there  is  much  of  that  willingness  now  even 
among  the  poorest  classes,  so  far  as  their  means  and  the  limits 
of  their  knowledge  will  allow. 

§  3.  The  advantages  which  those  born  in  one  of  the 
higher  grades  of   society  have  over  those  born 

•  ,  •  i.    '  X  £    ^1        start  in  life. 

in  a  lower,  consist  in  a  great  measure  ot  the 
better  introductions  and  the  better  start  in  life  which  they  re- 
ceive from  their  parents.  But  the  importance  of  this  good  start 
in  life  is  nowhere  seen  more  clearly  than  in  a  comparison  of 
the  fortunes  of  the  sons  of  artisans  and  of  unskilled  labourers. 
T^ere  are  not  many  skilled  trades  to  which  the  son  of  an 
unskilled  labourer  can  get  easy  access :   and  in  _. 

o  J  J  The  sons  of 

the  large  majority  of  cases  the  son  follows  the  artisans  and 
father's   calling.     In  the  old-fashioned  domestic 
industries  this  was  almost  a  universal  rule ;  and,  even  under 
modern  conditions,  the  father  has  often  great  facilities  for 
introducing  his  son  to  his  own  trade. 

But  the  son  of  the  artisan  has  further  advantages.  He 
generally  lives  in  a  better  and  cleaner  house,  and  under 
material  surroundings  that  are  more  consistent  with  refine- 
ment than  those  with  which  the  ordinary  labourer  is  familiar. 
His  parents  are  likely  to  be  better  educated,  and  to  have  a 
higher  notion  of  their  duties  to  their  children ;  and,  last  but 
not  least,  his  mother  is  likely  to  be  able  to  give  more  of  her 
time  to  the  care  of  her  family. 


300  BOOK  VI.   CH.  IV.   §§  8—5. 

If  we  compare  one  country  of  the  civilized  world  with 
another,  or  one  part  of  England  with  another,  or  one  trade  in 
England  with  another,  we  find  that  the  degradation  of  the 
working-classes  varies  almost  uniformly  with  the  amount  of 
rough  work  done  by  women.  The  most  valuable  of  all  capital 
is  that  invested  in  human  beings ;  and  of  that  capital  the 
most  precious  part  is  the  result  of  the  care  and  influence  of 
the  mother,  so  long  as  she  retains  her  tender  and  unselfish 
instincts,  and  has  not  been  hardened  by  the  strain  and  stress 
of  unfeminine  work. 

§  4.  As  the  youth  grows  up,  the  influence  of  his  parents 
and  his  schoolmaster  declines ;  and  thenceforward  to  the  end 
of  his  life  his  character  is  moulded  chiefly  by  the  nature  of 
his  work  and  the  influence  of  those  with  whom  he  associates 
for  business,  for  pleasure  and  for  religious  worship. 

Something  has  already  been  said  of  the  technical  training 
The  technical  ^^  adults,  of  the  decadence  of  the  old  apprentice- 
training  of  the  ship  system,  and  of  the  difficulty  of  finding  any- 
pends  in  a  ^"  ^^ing  to  take  its  place.  Here  again  we  meet  the 
great  measure  diflSculty  that  whoever  may  incur  the  expense  of 
selfishness  of  investing  capital  in  developing  the  abilities  of  the 
the  employer.  ^Qj.]jjjjan,  those  abilities  will  be  the  property  of 
the  workman  himself:  and  thus  the  virtue  of  those  who  have 
aided  him  must  remain  for  the  greater  part  its  own  reward. 

It  is  true  that  high-paid  labour  is  really  cheap  to  those 
employers  who  are  aiming  at  leading  the  race,  and  whose 
ambition  it  is  to  turn  out  the  best  work  by  the  most  advanced 
methods.  They  are  likely  to  give  their  men  high  wages  and 
to  train  them  carefully;  partly  because  it  pays  them  to  do 
so,  and  partly  because  the  character  that  fits  them  to  take 
the  lead  in  the  arts  of  production  is  likely  also  to  make  them 
take  a  generous  interest  in  the  well-being  of  those  who  work 
for  them.  But  though  the  number  of  such  employers  is 
increasing,  they  are  still  comparatively  few. 

Again,  in  paying  his  workpeople  high  wages  and  in  caring 


DEMAND  AND  SUPPLY  IN  RELATION  TO  LABOUR.      301 

for  their  happiness  and  culture,  the  liberal  employer  confers 
benefits  which  do  not  end  with  his  own  genera-  j^g  benefits  are 
tion.     For  the  children  of  his  workpeople  share  cumulative, 

.        ^      ,  -    but accrue  only 

m  them,  and  grow  up  stronger  m  body  and  in  part  to  him 
in  character  than  otherwise  they  would  have  or  ^is  heirs. 
done.  The  price  which  he  has  paid  for  labour  will  have  borne 
the  expenses  of  production  of  an  increased  supply  of  high 
industrial  faculties  in  the  next  generation :  but  these  faculties 
will  be  the  property  of  others,  who  will  have  the  right  to  hire 
them  out  for  the  best  price  they  will  fetch :  neither  he  nor 
even  his  heirs  can  reckon  on  reaping  much  material  reward 
for  this  part  of  the  good  that  he  has  done. 

§  5.     The  next  of   those  characteristics  of   the  action  of 
demand  and  supply  peculiar  to  labour,  which  we 
have  to  study,  lies  in  the  fact  that  when  a  person  peculiarity, 
sells  his  services,  he  has  to  present  himself  where  J^bour  mustf 
they  are  delivered.     It  matters  nothing  to  the  deliver  it  him- 
seller  of  bricks  whether  they  are  to  be  used  in 
building  a  palace  or  a  sewer :  but  it  matters  a  great  deal  to 
the  seller  of   labour,  who  undertakes  to  perform  a  task   of 
given  difficulty,  whether  or  not  the  place  in  which  it  is  to 
be  done  is  a  wholesome  and  a  pleasant  one,  and  whether  or 
not  his  associates  will  be  such  as  he  cares  to  have.     In  those 
yearly  hirings  which  still  remain  in  some  parts  of  England, 
the  labourer  inquires  what  sort  of  a  temper  his  new  employer 
has,  quite  as  carefully  as  what  rate  of  wages  he  pays. 

This  peculiarity  of  labour  is  of  great  importance  in  many 
individual  cases,  but  it  does  not  often  exert  a  The  effects  of 
broad  and  deep  influence  of  the  same  nature  as  generaii"°* 
that  last  discussed.  The  more  disagreeable  the  cumulative, 
incidents  of  an  occupation,  the  higher  of  course  are  the  wages 
required  to  attract  people  into  it :  but  whether  these  incidents 
do  lasting  and  wide-spreading  harm  depends  on  whether  they 
are  such  as  to  undermine  men's  physical  health  and  strength 
or  to  lower  their  character.     When  they  are  not  of  this  sort, 


802  BOOK  VI.  CH.  IV.  §§  5,  6. 

they  are  indeed  evils  in  themselves,  but  they  do  not  generally 
cause  other  evils  beyond  themselves ;  their  effects  are  seldom 
cumulative. 

Since  however  no  one  can  deliver  his  labour  in  a  market 
in  which  he  is  not  himself  present,  it  follows  that  the  mobility 
of  labour  and  the  mobility  of  the  labourer  are  convertible 
terms :  and  the  unwillingness  to  quit  home,  and  to  leave  old 
associations,  including  perhaps  some  loved  cottage  and  burial- 
ground,  will  often  turn  the  scale  against  a  proposal  to  seek 
better  wages  in  a  new  place.  And  when  the  different  mem- 
bers of  a  family  are  engaged  in  different  trades,  and  a  migra- 
tion, which  would  be  advantageous  to  one  member,  would  be 
injurious  to  others,  the  inseparability  of  the  worker  from  his 
work  considerably  hinders  the  adjustment  of  the  supply  of 
labour  to  the  demand  for  it. 

§  6.  Again,  labour  is  often  sold  under  special  disadvan- 
tages, arising  from  the  closely  connected  group  of 
fourth  p"cu-  facts  that  labour  power  is  "perishable,"  that  the 
liarities.  sellers  of  it  are  commonly  poor  and  have  no  re- 

perishabie  and  serve  fund,  and  that  they  cannot  easily  withhold 
the  sellers  ofit  ^^  £         ^^le  market.     Perishableness  is  an  attri- 

are  otten  at  a 

disadvantage     bute  common  to  the  labour  of  all  grades :  the 
argaining.    ^.^^  ^^^^  when  a  worker  is  thrown  out  of  employ- 
ment cannot  be  recovered,  though  in  some  cases  his  energies 
may  be  refreshed  by  rest\ 

The  want  of  reserve  funds  and  of  the  power  of  long  with- 
holding their  labour  from  the  market  is  common  to  nearly 
all  grades  of  those  whose  work  is  chiefly  with  their  hands. 
But  it  is  especially  true  of  unskilled  labourers,  partly  because 
their  wages  leave  very  little  margin  for  saving,  partly  because 
when  any  group  of  them  suspends  work,  there  are  large 
numbers  who  are  capable  of  filling  their  places.  And,  as  we 
shall  see  presently  when  we  come  to  discuss  trade  combina- 
tions, it  is  more  difficult  for  them  than  for  skilled  artisans  to 
1  See  above,  Ch.  ni.  §  3. 


DEMAND   AND   SUPPLY  IN   RELATION  TO  LABOUR.      303 

form  themselves  into  strong  and  lasting  combinations ;  and 
so  to  put  themselves  on  something  like  terms  of  equality  in 
bargaining  with  their  employers.  For  it  must  be  remem- 
bered that  a  man  who  employs  a  thousand  others,  is  in  himself 
an  absolutely  rigid  combination  to  the  extent  of  one  thousand 
units  among  buyers  in  the  labour  market.  But  these  state- 
ments do  not  apply  to  all  kinds  of  labour.  Domestic  servants 
though  they  have  not  large  reserve  funds,  and  seldom  any 
formal  trades-union,  are  sometimes  better  able  than  their 
employers  to  act  in  concert  \ 

Turning  next  to  the  highest  grades  of  industry,  we  find 
that  as  a  rule  they  have  the  advantage  in  bargaining  over 
the  purchaser  of  their  labour.  Many  of  the  professional 
classes  are  richer,  have  larger  reserve  funds,  more  knowledge 
and  resolution,  and  much  greater  power  of  concerted  action, 
with  regard  to  the  terms  on  which  they  sell  their  services, 
than  the  greater  number  of  their  clients  and  customers  ^ 

It  is  however  certain  that  manual  labourers   as  a   class 
are  at  a  disadvantage  in  bargaining ;    and  that  This  last  evil 
the  disadvantage  wherever  it  exists  is  likely  to  be  '^  cumulative. 

1  The  total  real  wages  of  the  domestic  servants  of  fashionable  London  are 
very  high  in  comparison  with  those  of  other  trades  in  which  equal  skill  and 
ability  are  required.  But  those  domestic  servants  who  have  no  specialized 
skin,  and  who  hire  themselves  to  persons  with  very  narrow  means,  have  not 
been  able  to  make  even  tolerably  good  terms  for  themselves :  they  work  very 
hard  for  very  low  wages. 

2  If  further  evidence  were  wanted  that  the  disadvantages  of  bargaining 
under  which  the  vendor  of  labour  commonly  suffers,  depend  on  his  own 
circumstances  and  qualities,  and  not  on  the  fact  that  the  particular  thmg 
which  he  has  to  sell  is  labour ;  such  evidence  could  be  found  by  comparing  the 
successful  barrister  or  solicitor  or  physician,  or  opera  singer  or  jockey  with 
the  poorer  independent  producers  of  vendible  goods.  Those,  for  instance, 
who  in  remote  places  coUect  shell-fish  to  be  sold  in  the  large  central  markets, 
have  little  reserve  funds  or  knowledge  of  the  world,  and  of  what  other 
producers  are  doing  in  other  parts  of  the  country :  while  those  to  whom  they 
sell,  are  a  small  and  compact  body  of  wholesale  dealers  with  wide  knowledge 
and  large  reserve  funds ;  and  in  consequence  the  sellers  are  at  a  great  disad- 
vantage in  bargaining.  And  much  the  same  is  true  of  the  women  and  children 
who  sell  hand-made  lace,  and  of  the  garret  masters  of  East  London  who  sell 
furniture  to  large  and  powerful  dealers. 


304  BOOK  VI.   CH.  IV.  I  6. 

cumulative  in  its  ejBPects.  For  though,  so  long  as  there  is  any 
competition  among  employers  at  all,  they  are  likely  to  bid  for 
labour  something  not  very  much  less  than  its  real  value  to 
them,  that  is,  something  not  very  much  less  than  the  highest 
price  they  would  pay  rather  than  go  on  without  it ;  yet  any- 
thing that  lowers  wages  tends  to  lower  the  efficiency  of  the 
labourer's  work,  and  therefore  to  lower  the  price  which  the 
employer  would  rather  pay  than  go  without  that  work.  The 
effects  of  the  labourer's  disadvantage  in  bargaining  are  there- 
fore cumulative  in  two  ways.  It  lowers  his  wages ;  and  as  we 
have  seen,  this  lowers  his  efficiency  as  a  worker,  and  thereby 
lowers  the  normal  value  of  his  labour.  And  in  addition  it 
diminishes  his  efficiency  as  a  bargainer,  and  thus  increases  the 
chance  that  he  will  sell  his  labour  for  less  than  its  normal 
value  \ 

1  Principles  VI.  iv.  contains  a  study  of  the  economic  value  of  an  individual 
to  his  country,  but  otherwise  differs  from  the  present  chapter  only  in  points  of 
detail. 


CHAPTER  V. 

DEMAND  AND  SUPPLY  IN  RELATION  TO  LABOUR, 
CONCLUDED. 

§  1.     The  next  peculiarity  in  the  action  of  demand  and 
supply  with  regard  to  labour,  which  we  have  to  pj^^j,  pgcuii- 
consider,  is  closely  connected  with  some  of  those  arity.    siow- 
we  have  already  discussed.     It  consists  in  the  of  new  supplies 
length  of  time  that  is  required  to  prepare  and  o^  labour, 
train  labour  for  its  work,  and  in  the  slowness  of  the  returns 
which  result  from  this  training. 

Not  much  less  than  a  generation  elapses  between  the  choice 
by  parents  of  a  skilled  trade  for  one  of  their  Difficulty  of 
children,  and  his  reaping  the  full  results  of  their  f^tJ^'.^^o j"^  *^^ 
choice.  And  meanwhile  the  character  of  the  trades, 
trade  may  have  been  almost  revolutionized  by  changes,  of 
which  some  probably  threw  long  shadows  before  them,  but 
others  were  such  as  could  not  have  been  foreseen  even  by  the 
shrewdest  persons  and  those  best  acquainted  with  the  circum- 
stances of  the  trade. 

The  working  classes  in  nearly  all  parts  of  England  are 
constantly  on  the  look-out  for  advantageous  openings  for  the 
labour  of  themselves  and  their  children ;  and  they  are  eager 
to  learn  from  friends  and  relations  who  have  settled  in  other 
districts  everyt)iing  that  they  can  as  to  the  wages  that  are 
to  be  got  in  other  trades.  It  is  astonishing  with  what  assiduity 
and  sagacity  many  of  them  pursue  their  inquiries,  not  only  as 
to  the  money  wages  to  be  obtained  in  a  trade,  but  also  as  to 
all  those  incidental  advantages  and  disadvantages  which  have 
been  discussed  in  the  last  chapter  but  one.  But  it  is  very 
difficult  to  ascertain  the  causes  that  are  likely  to  determine 
M.  20 


306  BOOK  VI.  CH.  V,  §§  1 — 3. 

the  distant  future  of  the  trades  which  they  are  selecting  for 
their  children;  and  there  are  not  many  who  enter  on  this 
abstruse  inquiry.  The  majority  assume  without  a  further 
thought  that  the  condition  of  each  trade  in  their  own  time 
sufficiently  indicates  what  it  will  be  in  the  future ;  and,  so  far 
as  the  influence  of  this  habit  extends,  the  supply  of  labour  in 
a  trade  in  any  one  generation  tends  to  conform  to  its  earnings 
not  in  that  but  in  the  preceding  generation. 

Again,  some  parents,  observing  that  the  earnings  in  one 
trade  have  been  for  some  years  rising  relatively  to  others 
in  the  same  grade,  assume  that  the  course  of  change  is  likely 
to  continue  in  the  same  direction.  But  it  often  happens 
that  the  previous  rise  was  due  to  temporary  causes,  and  that, 
even  if  there  had  been  no  exceptional  influx  of  labour  into 
the  trade,  the  rise  would  have  been  followed  by  a  fall  instead 
of  a  further  rise :  and,  if  there  is  such  an  exceptional  influx, 
the  consequence  may  be  a  supply  of  labour  so  excessive,  that 
its  earnings  remain  below  their  normal  level  for  many  years. 

§  2.  But  we  must  not  omit  to  notice  those  adjustments  of 
the  supply  of  labour  to  the  demand  for  it,  which  are  effected 
by  movements  of  adults  from  one  trade  to  another,  one  grade 
T,.  ^  to  another,  and  one  place  to  another.    The  move- 

1  ne  move-  '  ^ 

merits  of  adult  ments  from  one  grade  to  another  can  seldom  be 
on  a  very  large  scale;  although  it  is  true  that 
exceptional  opportunities  may  sometimes  develop  rapidly  a 
great  deal  of  latent  ability  among  the  lower  grades.  Thus, 
for  instance,  the  sudden  opening  out  of  a  new  country,  or  such 
an  event  as  the  American  War,  will  raise  from  the  lower 
ranks  of  labour  many  men  who  bear  themselves  well  in 
difficult  and  responsible  posts. 

And  the  movements  of  adult  labour  from  trade  to  trade 
are  however  ^^^  from  place  to  place  can  in  some  cases  be  so 
of  increasing  large  and  so  rapid  as  to  reduce  within  a  very 
impo  ance.       q^qj.^  compass  the  period  which  is  required  to 


DEMAND  AND  SUPPLY  IN  RELATION  TO  LABOUR.   307 

enable  the  supply  of  labour  to  adjust  itself  to  the  demand. 
That  general  ability  which  is  easily  transferable  from  one 
trade  to  another,  is  every  year  rising  in  importance  relatively 
to  that  manual  skill  and  technical  knowledge  which  are 
specialized  to  one  branch  of  industry'.  And  thus  economic 
progress  brings  with  it  on  the  one  hand  a  constantly  increasing 
changefulness  in  the  methods  of  industry,  and  therefore  a 
constantly  increasing  difficulty  in  predicting  the  demand  for 
labour  of  any  kind  a  generation  ahead ;  but  on  the  other  hand 
it  brings  also  an  increasing  power  of  remedying  such  errors  of 
adjustment  as  have  been  made. 

§  3.     Thus   these   market    variations   in   the   price   of   a 
commodity  are  governed  by  the  temporary  re- 
lations between  demand  and  the  stock  that  is  in  of  earnings  are 
the  market  or  within  easy  access  of  it.     When  fjreli^lf 
the    market   price   so   determined   is   above   its  fluctuations  of 
normal  level,  those  who  are  able  to  bring  new 
supplies  into  the  market  in  time  to  take  advantage  of   the 
high  price  receive  an  abnormally  high  reward.     If  they  are 
small   handicraftsmen   working   on   their   own   account,    the 
whole  of  this  rise  in  price  goes  to  increase  their  earnings^. 

In  the  modern  industrial  world,  however,  those  who 
undertake  the  risks  of  production  and  to  whom  the  benefits 
of  any  rise  in  price,  and  the  evils  of  any  fall  come  in  the 
first  instance,  are  capitalist  undertakers  of  industry.  But 
the  force  of  competition  among  the  employers  themselves,  each 
desiring  to  extend  his  business,  and  to  get  for  himself  as 
much  as  possible  of  the  rich  harvest  that  is  to  be  reaped  when 
their  trade  is  prosperous,  makes  them  consent  to  pay  higher 
wages  to  their  employes  in  order  to  obtain  their  services. 

Thus  the  high  wages  of  coal-miners  during  the  inflation 
which  culminated  in  1873,  were  determined  for  the  time  by 

1  See  Book  iv.  Ch.  vi.  §  1. 

2  These  earnings  include  for  the  time  a  very  high  Quasi-rent  of  their  stock 
of  trained  ability.  If  they  have  any  considerable  stock  of  trade  implements, 
they  are  to  that  extent  capitalists ;  and  part  of  their  income  is  Quasi-rent  on 
this  capitaL  ^^      ^ 


308  BOOK  VI.  CH.  V.  §§  3,  4. 

the  relation  in  which  the  demand  for  their  services  stood  to 
Illustration  the  amount  of  skilled  mining  labour  available, 
from  the  his_      ^^^    unskilled    labour    imported   into   the   trade 

tory  of  the  coal  ^  ^ 

trade.  being  counted  as  equivalent  to  an  amount  of  skilled 

labour  of  equal  efficiency.  Had  it  been  impossible  to  import 
any  such  labour  at  all,  the  earnings  of  miners  would  have  been 
limited  only  by  the  elasticity  of  the  demand  for  coal  on  the 
one  hand,  and  the  gradual  coming  to  age  of  the  rising  gene- 
ration of  miners  on  the  other.  As  it  was,  men  were  drawn 
from  other  occupations  which  they  were  not  eager  to  leave ; 
for  they  could  have  got  high  wages  by  staying  where  they 
were,  since  the  prosperity  of  the  coal  and  iron  trades  was  but 
the  highest  crest  of  a  swelling  tide  of  credit.  These  new 
men  were  unaccustomed  to  underground  work ;  its  discomforts 
told  heavily  on  them,  while  its  dangers  were  increased  by  their 
want  of  technical  knowledge,  and  their  want  of  skill  caused 
them  to  waste  much  of  their  strength.  The  limits  therefore 
which  their  competition  imposed  on  the  rise  of  the  temporary 
wages  (or  Quasi-rent)  of  miners'  skill  were  not  narrow. 

When  the  tide  turned,  those  of  the  new-comers  who  were 
least  adapted  for  the  work,  left  the  mines ;  but  even  then  the 
miners  who  remained  were  too  many  for  the  work  to  be  done, 
and  their  wage  fell,  till  it  reached  that  limit  at  which  they 
could  get  more  by  selling  their  labour  in  other  trades.  And 
that  limit  was  a  low  one ;  for  the  swollen  tide  of  credit,  which 
culminated  in  1873,  had  undermined  solid  business,  impaired 
the  true  foundations  of  prosperity,  and  left  nearly  every  trade 
in  a  more  or  less  unhealthy  and  depressed  condition.  The 
miners  had  therefore  to  sell  their  skilled  labour  in  markets 
which  were  already  over  full,  and  in  which  their  special  skill 
counted  for  nothing. 

§  4.  To  conclude  this  part  of  our  argument.  The  market 
price  of  everything,  i.e.  its  price  for  short  periods,  is  deter- 
mined mainly  by  the  relations  in  which  the  demand  for  it 
stands  to  the  available  stocks  of  it ;  and  in  the  case  of 
labour   or   any   other   agent   of   production   this   demand   is 


DEMAND  AND  SUPPLY  IN  RELATION  TO  LABOUR.   309 

"  derived  "  from  the  demand  for  those  things  which  the  agent  i 
is  used  in  making.     In  these  relatively  short  periods  fluctua-  ' 
tions  in  wages  follow,  and  do  not  precede,  fluctuations  in  the 
selling  prices  of  the  goods  produced. 

But  the  incomes  which  are  being  earned  by  all  agents 
of  production,  human  as  well  as  ma,terial,  and  those  which 
appear  likely  to  be  earned  by  them  in  the  future,  exercise  a 
ceaseless  influence  on  those  persons  by  whose  action  the 
future  supplies  of  these  agents  are  determined.  There  is  a 
constant  tendency  towards  a  position  of  normal  equilibrium, 
in  which  the  supply  of  each  of  these  agents  shall  stand  in 
such  a  relation  to  the  demand  for  its  services,  as  to  give  to 
those  who  have  provided  the  supply  a  sufficient  reward  for 
their  efforts  and  sacrifices.  If  the  economic  conditions  of 
the  country  remained  stationary  sufficiently  long,  this  ten- 
dency would  realize  itself  in  such  an  adjustment  of  supply  to 
demand,  that  both  machines  and  human  beings  would  earn 
generally  an  amount  that  corresponded  fairly  with  their  cost 
of  rearing  and  training,  conventional  necessaries  as  well  as 
those  things  which  are  strictly  necessary  being  reckoned  for. 
But  conventional  necessaries  might  change  under  the  influence 
of  non-economic  causes,  even  while  economic  conditions  them- 
selves were  stationary  :  and  this  change  would  aifect  the  supply 
of  labour,  and  would  lessen  the  national  dividend  and  slightly 
alter  its  distribution.  As  it  is,  the  economic  conditions  of  the 
country  are  constantly  changing,  and  the  point  of  adjustment 
of  normal  demand  and  supply  in  relation  to  labour  is  constantly 
being  shifted  \ 


1  In  Principles  VI.  v.,  the  argument  of  this  last  Section  is  pursued  more  at 
length,  and  with  reference  to  several  difficulties  that  are  ignored  here.  In 
particular  it  is  argued  that  the  extra  income  earned  by  some  natural  abilities 
may  be  regarded  as  a  Rent  sometimes,  but  not  when  we  are  considering  the 
normal  earnings  of  a  trade.  This  analogy  is  valid  so  long  as  we  are  merely 
analysing  the  soiwce  of  the  incomes  of  individuals,  and  it  might  even  be 
carried  further  if  persons  were  born  with  rare  abilities  specialised  to  particular 
branches  of  production. 


CHAPTER  VI. 

DEMAND  AND  SUPPLY  IN   RELATION   TO   CAPITAL.      A 
FURTHER  STUDY  OF  INTEREST. 

§  1.  The  main  principles  of  the  action  of  demand  and 
supply  with  regard  to  capital  have  been  discussed  in  the  first 
two  chapters  of  this  Book\  We  there  looked  back  at  the 
results  of  our  earlier  studies,  and  endeavoured  to  bring 
together  and  study  in  their  mutual  relations  a  number  of 
sep&;rate  doctrines  as  to  capital,  each  of  which  is  familiar  to 
every  intelligent  man ;  though  he  may  not  be  able,  without 
some  special  study,  to  see  their  bearings  on  one  another  and 
the  part  they  severally  play  in  the  great  central  problem  of 
distribution. 

But  in  earlier  times  even  great  thinkers  failed  not  only  to 
understand  the  part  which  capital  plays  in  this  great  pro- 
blem, but  even  to  recognise  clearly  many  of  the  separate 
truths  which  are  now  regarded  as  common-place.  They 
were  impressed  by  observing  that  most  borrowers  were 
poor,  that  most  lenders  were  rich;  that  the  lenders  very 
often  suffered  no  material  loss  through  making  a  loan,  and 
that  they  often  wrung  exorbitant  usury  out  of  the  needs  of 
the  poor.  These  facts  enlisted  their  sympathies;  and,  aided 
by  some  specious  metaphysical  reasoning,  prevented  them 
from  perceiving  that  he  who  lends  to  another  hands  over  to 
him  the  power  of  using  temporarily  some  desirable  thing,  and 
that  this  action  has  as  much  right  to  payment,  as  the  act  of 
handing  to  him  absolutely  some  other  thing  of  smaller  value. 

1  Much  that  was  in  this  chapter  in  the  earlier  editions  is  now  transferred 
to  those  earlier  chapters. 


DEMAND  AND  SUPPLY  IN  RELATION  TO  CAPITAL.      311 

If  the  first  man  be  rich  it  may  be  his  duty  in  either  case  to 
confer  a  benefit  freely  on  his  poorer  neighbour  without  ex- 
pecting anything  in  return.  But  if  a  person  can  use  £100  so 
as  to  produce,  after  allowing  for  his  trouble,  things  worth  £103 
net  at  the  end  of  a  year,  there  is  no  reason  for  his  lending  the 
£100  free  of  interest  to  another,  which  would  not  require  him 
to  ma^^  to  that  other  a  free  present  of  £3.  ^  I  j 

§  2!NkWe  have  seen  that  interest  is  the  reward  of^aiting  1/ 
in  the  same  sense  that  wages  are  the  reward  of  labour.XMuch  11 
work  is  pleasurable ;  but  every  one  claims  his  full  pay  for  all  ^ 
the  work  he  does  for  others  as  a  matter  of  ordinary  business, 
however  pleasurable  it  may  be  to  himself.  Similarly  many 
people  would  wish  to  defer  some  of  their  enjoyments,  even  if 
they  had  to  put  by  the  money,  which  gives  command  over 
them,  without  hope  of  interest :  but  yet  those  who  have  the 
means  of  lending,  will  not  lend  gratis  as  a  rule ;  because,  even 
if  they  have  not  themselves  some  good  use  to  which  to  turn 
the  capital  or  its  equivalent,  they  are  sure  to  be  able  to  find 
others  to  whom  its  use  would  be  of  benefit,  and  who  would  pay 
for  the  loan  of  it :  and  they  stand  out  for  the  best  market. 
And  there  always  is  a  market,  because  though  the  stock  of 
loanable  wealth  is  increasing  fast,  new  openings  for  its  profit- 
able use  are  ever  being  made  by  the  progress  of  the  mechanical 
arts  and  the  opening  up  of  new  countries. 

But  now  we  may  leave  these  general  considerations,  and 
make  a  more  detailed  study  of  this  notion  of  Inte-  Net  and  Gross 
rest.     For  the  interest  of  which  we  speak  when  interest, 
we  say  that  interest  is  the  earnings  of  capital  simply,  or  the 

1  This  line  of  argument  is  pursued  in  some  detail  in  Principles  VI.  vi.  It 
is  argued  that  the  modern  theories  of  Carl  Marx  and  some  others  as  to 
capital,  repeat  this  old  error  in  a  disguised  form,  and  without  the  excuse 
which  there  was  for  it  in  earlier  times:  but  that  with  this* exception,  the 
history  of  the  theory  of  interest  has  been  one  of  almost  continuous  progress 
during  the  last  three  centuries:  every  generation  has  done  something  to 
forward  it,  none  has  been  able  to  make  any  fundamental  change.  Reasons 
are  also  given  for  dissenting  from  Prof.  Bohm-Bawerk's  doctrines  on  the 
subject. 


312  BOOK  VI.  CH.   VI.  §§  2,  3. 

reward  of  waiting  simply,  is  Net  interest ;  but  what  commonly 
passes  by  the  name  of  Interest,  includes  other  elements  besides 
this,  and  may  be  called  Gross  interest. 

These  additional  elements  are  the  more  important,  the  lower 

1  Gross  interest  and  more  rudimentary  the  state  of  commercial 
insurlncr"'^  security  and  of  the  organization  of  credit.  Thus, 
against  risk,  for  instance,  in  mediaeval  times,  when  a  prince 
wanted  to  forestall  some  of  his  future  revenues,  he  borrowed 
perhaps  a  thousand  ounces  of  silver,  and  undertook  to  pay 
back  fifteen  hundred  at  the  end  of  a  year.  There  was  how- 
ever no  perfect  security  that  he  would  fulfil  the  promise ;  and 
perhaps  the  lender  would  have  been  willing  to  exchange  that 
promise  for  an  absolute  certainty  of  receiving  thirteen  hundred 
at  the  end  of  the  year.  In  that  case,  while  the  nominal  rate 
at  which  the  loan  was  made,  was  fifty  per  cent.,  the  real  rate 
was  thirty. 

The  necessity  for  making   this   allowance   for  insurance 

i  and  also  Earn-  ^g^^^^^t  risk  is  SO  obvious,  that  it  is  not  often 

I  ings  of  Man-      overlooked.     But  it  is  less  obvious  that   every 

I  agem     .  \qq^-q^  causes  some  trouble  to  the  lender;  that  when, 

from  the  nature  of  the  case,  the  loan  involves  considerable 

risk,  a  great  deal  of  trouble  has  often  to  be  taken  to  keep 

these  risks  as  small  as  possible ;  and  that  then  a  great  part  of 

what  appears  to  the  borrower  as  interest,  is,  from  the  point  of 

view  of  the  lender,  Earnings  of  Management  of  a  troublesome 

business. 

At  the  present  time  the  net  interest  on  capital  in  England 
is  a  little  under  three  per  cent,  per  annum ;  for  no  more  than 
that  can  be  obtained  by  investing  in  such  first-rate  Stock 
Exchange  securities  as  yield  to  the  owner  a  secure  income 
without  appreciable  trouble  or  expense  on  his  part.  And 
when  we  find  capable  business  men  borrowing  on  perfectly 
secure  mortgages,  at  (say)  four  per  cent.,  we  may  regard  that 
gross  interest  of  four  per  cent,  as  consisting  of  net  interest,  or 
interest  proper,  to  the  extent  of  a  little  under  three  per  cent., 


DEMAND   AND   SUPPLY   IN  RELATION   TO  CAPITAL.      313 

and  of  Earnings  of  Management  by  the  lenders  to  the  extent 
of  rather  less  than  one  per  cent. 

Again,  a  pawnbroker's  business  involves  next  to  no  risk ; 
but  his  loans  are  generally  made  at  the  rate  of  25  per  cent, 
per  annum,  or  more ;  the  greater  part  of  which  is  really 
Earnings  of  Management  of  a  troublesome  business.  Or  to 
take  a  more  extreme  case,  there  are  men  in  London  and  Paris 
and  probably  elsewhere,  who  make  a  living  by  lending  money 
to  costermongers  :  the  money  is  often  lent  at  the  beginning  of 
the  day  for  the  purchase  of  fruit,  (fee,  and  returned  at  the  end 
of  the  day,  when  the  sales  are  over,  at  a  profit  of  ten  per 
cent.;  there  is  little  risk  in  the  trade,  and  the  money  is 
seldom  lost.  Now  a  farthing  invested  at  ten  per  cent,  a  day 
would  amount  to  a  billion  pounds  at  the  end  of  a  year.  But 
no  one  can  become  rich  by  lending  to  costermongers ;  because 
no  one  can  lend  much  in  this  way.  The  so-called  interest  on 
the  loans  really  consists  almost  entirely  of  earnings  of  a  kind  of 
work  for  which  few  capitalists  have  a  taste. 

§  3.     It  is  then  necessary  to  analyse  a  little  more  care- 
fully the  extra  risks  which  are  introduced  into 

,        .  ,  1         r>      1  •      1  1     •        "j^     Further  analy- 

business  when  much  ot  the  capital  used  m   it   sis  of  Gross  in- 
has  been  borrowed.     Let  us  suppose  that  two  men  ^^'■^^*- 
are  carrying  on  similar  businesses,  the  one  working  with  his 
own,  the  other  chiefly  with  borrowed  capital. 

There  is  one  set  of  risks  which  is  common  to  both;  which 
may  be  described  as  the  Trade  Risks  of  the  particular 
business  in  which  they  are  engaged.  They  arise  from  fluctua- 
tions in  the  markets  for  their  raw  materials 
and  finished  goods,  from  unforeseen  changes  of 
fashion,  from  new  inventions,  from  the  incursion  of  new  and 
powerful  rivals  into  their  respective  neighbourhoods,  and  so 
on.  But  there  is  another  set  of  risks,  the  burden  of  which 
has  to  be  borne  by  the  man  working  with  borrowed  capital, 
and   not   by   the  other;    and  we  may  call   them   Personal 


314  BOOK   VI.    CH.   VI.    §   3. 

Risks.     For  he  who  lends  capital  to  be  used  by  Personal 
another  for  trade  purposes,  has  to  charge  a  high  Risks, 
interest  as  insurance   against   the  chances  of   some  flaw  or 
deficiency  in  the  borrower's  personal  character  or  ability. 

The  price  then  that  the  borrower  has  to  pay  for  the  loan 
of  capital,  and  which  he  resrards  as  interest,  is 

,.  P       •  ^111  Gross   interest 

from  the  point  of  view  of  the  lender  more  does  not  tend 
properly  to  be  regarded  as  profits  :  for  it  includes  *°  equality, 
insurance  against  risks  which  are  often  very  heavy,  and 
Earnings  of  Management  for  the  task,  which  is  often  very 
arduous,  of  keeping  those  risks  as  small  as  possible.  Varia- 
tions in  the  nature  of  these  risks  and  of  the  task  of  manage- 
ment will  of  course  occasion  corresponding  variations  in  the 
Gross  interest,  so  called,  that  is  paid  for  the  use  of  money. 
The  tendency  of  competition  is  therefore  not  towards  equaliz- 
ing this  Gross  interest :  on  the  contrary,  the  more  thoroughly 
lenders  and  borrowers  understand  their  business,  the  more 
certainly  will  some  classes  of  borrowers  obtain  loans  at  a 
lower  rate  than  others. 

We  must  defer  to  a  later  stage  our  study  of  the  marvel- 
lously efficient  organization  of  the  modem  Money  Market  by 
which  capital  is  transferred  from  one  place  where  it  is  super- 
abundant to  another  where  it  is  wanted ;  or  from  one  trade 
that  is  in  the  process  of  contraction  to  another  which  is  being 
expanded :  and  at  present  we  must  be  contented  to  take  it 
for  granted  that  a  very  small  difference  between  the  rates  of 
Ket  interest  to  be  got  on  the  loan  of  capital  in  two  different 
modes  of  investment  in  the  same  Western  country  will  cause 
capital  to  flow,  though  perhaps  by  indirect  channels,  from  the 
one  to  the  other  \ 


1  Up  to  this  point  Principles  VI.  vi.  differs  from  the  present  Chapter  chiefly 
in  matters  of  detail  and  of  secondary  importance.  But  there  follows  some 
account  of  the  misconceptions  of  the  true  nature  of  interest  current  in  the 
Middle  Ages,  and  of  those  which  have  led  Marx  and  other  socialists  to  regard 
interest  as  a  thing  unjust  in  itself. 


CHAPTER  VII. 

DEMAND  AND  SUPPLY  IN  RELATION  TO  CAPITAL,  BUSINESS 
POWER  AND  INDUSTRIAL  ORGANIZATION. 

§  1.  In  the  concluding  Chapters  of  Book  iv.  we  made 
some  study  of  the  various  forms  of  business  This  Chapter 
management,  and  the  faculties  required  for  them;  t5Je7ittir"part 
and  we  saw  how  the  supply  of  business  power  in  of  Book  iv. 
command  of  capital  may  be  regarded  as  consisting  of  three 
elements,  the  supply  of  capital,  the  supply  of  the  business 
power  to  manage  it,  and  the  supply  of  the  organization  by 
which  the  two  are  brought  together  and  made  effective  for 
production.  We  have  now  to  carry  this  study  further ;  and 
to  inquire  more  closely  into  the  nature  of  the  services  which 
the  business  undertaker  renders  to  society,  and  the  rewards  of 
this  work.  We  shall  find  that  the  causes  which  govern  the 
earnings  of  business  men  are  less  arbitrary,  and  present  closer 
analogies  to  those  which  govern  other  kinds  of  earnings  than 
is  commonly  supposed. 

We  must  however  make  a  distinction  at  starting^.  The 
Struggle  for  Survival  tends  to  make  those  j^^^^^^  ^^  ^j^^ 
methods  of  organization  prevail,  which  are  best  struggle  for 
fitted  to  thrive  in  their  environment ;  but  not  "^*^^  • 
necessarily  those  best  fitted  to  benefit  their  environment, 
unless  it  happens  that  they  are  duly  rewarded  for  all  the 
benefits  which  they  confer,  whether  direct  or  indirect.  And 
in  fact  this  is  not  so.  For  as  a  general  rule  the  Law  of 
Substitution — which  is  nothing  more  than  a  special  and  limited 
application  of  the  Law  of  Survival  of  the  Fittest — tends  to 
1  See  Book  iv,  Ch.  vin. 


316  BOOK  VI.  CH.  VII.  §§  1,  2. 

make  one  method  of  industrial  organization  supplant  another 
when  it  offers  a  direct  and  immediate  service  at  a  lower  price. 
The  indirect  and  ultimate  services  which  either  will  render 
have,  as  a  general  rule,  little  or  no  weight  in  the  balance ; 
and  as  a  result  many  businesses  languish  and  die,  which  might 
in  the  long  run  have  done  good  work  for  society  if  only  they 
could  have  obtained  a  fair  start.  This  is  especially  true  of 
some  forms  of  co-operative  associations. 

In  this  connection  we  may  divide  employers  and  other 
undertakers  into  two  classes,  those  who  open  out  new  and 
improved  methods  of  business,  and  those  who  follow  beaten 
tracks.  The  services  which  the  latter  perform  for  society  are 
chiefly  direct  and  seldom  miss  their  full  reward :  but  it  is 
otherwise  with  the  former  class. 

For  instance,  economies  have  lately  been  introduced  into 
some  branches  of  iron  manufacture  by  diminishing  the  number 
of  times  which  the  metal  is  heated  in  passing  from  pig  iron  to 
its  final  form ;  and  some  of  these  new  inventions  have  been  of 
such  a  nature  that  they  could  neither  be  patented  nor  kept 
secret.  Let  us  suppose  then  that  a  manufacturer  with  a 
capital  of  .£50,000  is  getting  in  normal  times  a  net  profit  of 
.£4,000  a  year,  £1,500  of  which  we  may  regard  as  his  Earnings 
of  Management,  leaving  .£2,500  for  the  other  two  elements  of 
profits.  We  assume  that  he  has  been  working  so  far  in  the 
same  way  as  his  neighbours,  and  showing  an  amount  of  ability 
which,  though  great,  is  no  more  than  the  normal  or  average 
ability  of  the  people  who  fill  such  exceptionally  difficult  posts; 
that  is,  we  assume  that  £1,500  a  year  is  the  normal  earnings 
for  the  kind  of  work  he  has  been  doing.  But  as  time  goes  on, 
he  thinks  out  a  way  of  dispensing  with  one  of  the  heatings 
that  have  hitherto  been  customary;  and  in  consequence, 
without  increasing  his  expenses,  he  is  able  to  increase  his 
annual  output  by  things  which  can  be  sold  for  £2,000  net. 
So  long,  therefore,  as  he  can  sell  his  wares  at  the  old  price, 
his  Earnings  of  Management  will  be  £2,000  a  year  above  the 


DEMAND  AND  SUPPLY  IN  RELATION  TO  CAPITAL.   317 

average;  and  he  will  earn  the  full  reward  of  his  services  to 
society.  His  neighbours  however  will  copy  his  plan,  and 
probably  make  more  than  average  profits  for  a  time.  But 
soon  competition  will  increase  the  supply,  and  lower  the  price 
of  their  wares,  until  their  profits  fall  to  about  their  old  level ; 
for  no  one  could  get  extra  high  wages  for  making  eggs  stand 
on  their  ends  after  Columbus'  plan  had  become  public 
property. 

Many  business  men  whose  inventions  have  in  the  long  run 
been  of  almost  priceless  value  to  the  world,  have  died  in 
poverty;  and  while  many  men  have  amassed  great  wealth  by 
good  fortune,  rather  than  by  exceptional  ability  in  the  per- 
formance of  public  services  of  high  importance,  it  is  probable 
that  those  business  men  who  have  pioneered  new  paths  have 
often  conferred  on  society  benefits  out  of  all  proportion  to 
their  own  gains,  even  though  they  have  died  millionaires. 

§  2.     We  will  now  begin  by  tracing  the  action   of   the 
Law  of  Substitution  in  adjusting  the  rewards  of  _..        t*  n    f 
the  services  rendered  to  society  by  ordinary  work-  the  Law  of 
"men,  by  foremen,  and  by  employers  of  different  in^contromng 
grades.     We  have  already  noticed  that  a  great  Earnings  of 
part  of  the  work  done  by  the  head  of  a  small 
business  himself,  is  relegated  in  a  large  business  to  salaried 
heads  of  departments,  managers,  foremen  and  others.     And 
this  thread  will  guide  us  to  much  that  is  useful  for  our  present 
inquiry.     The  simplest  case  is  that  of  the  earnings  of  the 
ordinary  foreman ;  with  which  we  may  begin. 

Let  us  suppose,  for  instance,  that  a  railway  contractor  or 
a  dockyard  manager  finds  that  it  answers  best  to  have  one 
foreman  to  every  twenty  labourers,  and  to  pay  him  twice  the 
wages  of  one  of  them.  This  means  that,  if  he  found  himself 
with  500  labourers  and  24  foremen,  he  would  expect  to  get 
just  a  little  more  work  done  at  the  same  expense  by  adding 
one  more  foreman,  than  by  adding  two  more  ordinary 
labourers  :  while  if  he  had  had  490  labourers  and  25  foremen, 


318  BOOK  VI.   CH.  VII.  §§  2,  3. 

he  would  have  found  it  better  to  add  two  more  labourers.  If 
he  could  have  got  his  foreman  for  one  and  a  half  times  the 
wages  of  a  labourer,  perhaps  he  would  have  employed  one 
foreman  to  every  fifteen  labourers.  But,  as  it  is,  the  number 
of  foremen  employed  is  determined  at  one-twentieth  of  that 
of  the  labourers,  and  their  demand  price  at  twice  the 
labourers'  wages. 

In  exceptional  cases  the  foremen  may  earn  their  wages 
by  over-driving  those  whose  work  they  superintend.  But  we 
may  now  suppose  them  to  contribute  to  the  success  of  the 
undertaking  in  a  legitimate  way,  by  securing  a  better  orga- 
nization of  its  details;  so  that  fewer  things  are  done  amiss 
and  need  to  be  undone ;  so  that  everyone  finds  the  help  that 
he  wants  in  moving  heavy  weights,  &c.,  ready  for  him  just 
when  he  wants  it ;  so  that  all  machinery  and  implements  are 
kept  in  good  working  order,  and  no  one  has  to  waste  his  time 
and  strength  by  working  with  inadequate  appliances,  and  so 
on.  The  wages  of  foremen  who  do  work  of  this  kind  may 
be  taken  as  typical  of  a  great  part  of  the  Earnings  of  Man- 
agement :  society,  acting  through  the  individual  employer, 
offers  an  effective  demand  for  their  services  until  that  margin 
is  reached  at  which  the  aggregate  efficiency  of  industry  would 
be  increased  by  adding  workers  of  some  other  grade  more 
than  by  adding  the  foremen  whose  wages  would  add  an  equal 
amount  to  the  expenses  of  production. 

§  3.  So  far  the  Employer  has  been  regarded  as  the  agent 
_.      _  -  through  whom  the  Law  of  Substitution  acts  in 

The     Law     of  => 

Substitution  contriving  and  arranging  the  factors  of  pro- 
the^emp°oyer  duction  SO  that  the  maximum  of  direct  services 
and  also  on  (estimated  by  their  money  measure)  should  be 
performed  at  a  minimum  money  cost.  But  now 
we  have  to  look  at  the  work  of  the  employers  themselves 
being  contrived  and  arranged  for  them,  though  of  course  in 
a  more  haphazard  fashion,  by  the  immediate  action  of  their 
own  competition. 


DEMAND   AND  SUPPLY   IN   KELATION   TO   CAPITAL.      319 

In  the  first  place  we  find  the  small  employer,  who  does  the 
whole  work  of  management  and  superintendence  in  his  busi- 
ness competing  with  the  large  employer  who  retains  in  his  own 
hands  only  the  supreme  work  of  controlling  the  higher  policy 
of  the  business.  And  in  this  way  as  the  earnings  and  services 
of  foremen  are  weighed  on  the  one  side  against  those  of  ordinary 
labourers,  so  on  the  other  the  earnings  and  services  of  the 
foremen  and  managers  who  in  the  large  business  are  hired  to 
do  much  that  the  small  employer  does  himself,  are  weighed 
against  his\ 

It  is  true  that  the  small  employer  needs  capital  of  his 
own  ;  but  as  we  have  already  noticed^  there  is  a  constant 
increase  in  the  ease  with  which  a  man  who  has  the  faculties 
for  managing  a  business,  can  borrow  the  requisite  capital. 

It  is  true  that  the  new  man  with  but  little  capital  of  his 
own  is  at  a  disadvantage  in  trades  which  move 
slowly  and  in  which  it  is  necessary  to  sow  a  long  ^^^  workfng 
time  before  one  reaps.  But  in  all  those  in-  with  borrowed 
dustries  in  which  bold  and  restless  enterprise 
can  reap  a  quick  harvest;  and  in  particular  wherever  high 
profits  are  to  be  made  for  a  time  by  cheaper  reproductions  of 
costly  wares,  there  the  new  man  is  in  his  element :  it  is  he  who 
by  his  quick  resolution  and  dexterous  contrivances,  and  perhaps 
also  a  little  by  his  natural  recklessness,  "  forces  the  pace." 

And  he  often  holds  his  own  with  great  tenacity  even 
under  considerable  disadvantages:  for  the  freedom      .„       ,.     j 

o      ^  ^  will  work  hard 

and  dignity  of  his  position  are  very  attractive  to  for  a  small  re- 
him.  Thus  the  peasant  proprietor  whose  little  ^^^ 
plot  is  heavily  mortgaged,  the  small  so-called  "sweater"  or 
"  garret  master  "  who  takes  out  a  sub-contract  at  a  low  price, 
will  often  work  harder  than  the  ordinary  workman,  and  for  a 
lower  net  income.  And  the  manufacturer  who  is  doing  a 
large  business  with  comparatively  little  capital  of   his  own 

1  This  point  is  worked  out  at  some  length  in  Principles  VI.  vii.  3,  4. 

2  Comp.  Book  IV.  Ch.  xii.§  7. 


320  BOOK  VI.  CH.  VII.  §^  3 — 5. 

will  reckon  his  labour  and  anxiety  almost  as  nothing,  for 
he  knows  that  he  must  anyhow  work  for  his  living,  and  he 
is  unwilling  to  go  into  service  to  another :  he  will  therefore 
work  feverishly  for  a  gain  that  would  not  count  much  in  the 
balance  with  a  wealthier  rival,  who,  being  able  to  retire  and 
live  in  comfort  on  the  interest  of  his  capital,  may  be  doubting 
whether  it  is  worth  while  to  endure  any  longer  the  wear-and- 
tear  of  business  life\ 

§  4.  But  the  weighing  in  the  balance  of  the  services,  and 
Joint  stock  therefore  the  earnings,  of  employees  against  the 
companies.  Earnings  of  Management  of  employers  is  in 
some  ways  best  illustrated  by  reference  to  Joint-stock  com- 
panies. For  in  them  most  of  the  work  of  management  is 
divided  between  salaried  directors  (who  indeed  hold  a  few 
shares  themselves)  and  salaried  managers  and  other  sub- 
ordinate officials,  most  of  whom  have  little  or  no  capital  of  any 
kind;  and  their  earnings,  being  almost  the  pure  earnings  of 
labour,  are  governed  in  the  long  run  by  those  general  causes 
which  rule  the  earnings  of  labour  of  equal  difficulty  and  dis- 
agreeableness  in  ordinary  occupations. 

Joint-stock  companies  seldom  have  the  enterprise,  the 
energy,  the  unity  of  purpose  and  the  quickness  of  action  of  a 
private  business.  But  these  disadvantages  are  of  relatively 
small  importance  in  some  trades.  That  publicity,  which  is 
one  of  the  chief  drawbacks  of  public  companies  in  many 
branches  of  manufacture  and  of  speculative  commerce,  is  a 
positive  advantage  in  ordinary  Banking  and  Insurance  and 
kindred  businesses ;  while  in  these,  as  well  as  in  most  of  the 
Transport  industries  (railways,  tramways,  canals,  and  the 
supply  of  gas,  water  and  electricity),  their  unbounded  com- 
mand over  capital  gives  them  almost  undisputed  sway. 

On  the  whole  they  exert  a  steadying  influence  on  the 
demand  for  capital,  and  on  the  demand  for  labour  of  all  kinds, 

1  The  advantages  and  disadvantages  of  the  undertaker  with  borrowed 
capital  are  further  discussed  in  Principles  VI.  vii.  5. 


DEMAND  AND  SUPPLY   IN   RELATION  TO   CAPITAL.       321 

and  especially  for  the  services  of  those  who,  having  business 
ability  but  no  capital  of  their  own,  desire  to  reap  some  Earn- 
ings of  Management  as  salaried  officials  of  a  great  under- 
taking. And  as  has  already  been  observed.  Co- 
operation promises,  more  than  any  other  form  of 
business  association,  to  turn  to  good  account  the  capabilities  of 
the  working  man  for  the  higher  posts  of  business  management. 

Thus  then  each  of  the  many  modern  methods  of  business 
has  its  own  advantages  and  disadvantages :  and  its  application 
is  extended  under  the  action  of  the  Law  of  Substitution  in 
every  direction  until  that  limit  or  margin  is  reached,  at  which 
its  special  advantages  for  that  use  no  longer  exceed  its  dis- 
advantages. 

§  5.    The  supply  of  business  power  is  large  and  elastic,  since 
the  area  from  which  it  is  drawn  is  wide.     Every-  -j.^^^  supply  of 
one  has  the  business  of  his  own  life  to  conduct ;  business    abi- 
this,  if  done  well,  affords  to  some  extent  training  from    a   wide 
for  business  management;  and  there  is  therefore  ^''^^' 
no  other  kind  of  highly  paid  ability  which  depends  so  little 
on  labour  and  expense  applied  specially  to  obtaining  it,  and 
which   depends   so  much  on  so-called   "natural  and  is  non- 
qualities."      And,    secondly,    business    power    is  specialized, 
highly   non-specialized;    because    in    the    large    majority    of 
trades,  technical  knowledge  and  skill  become  every  day  less 
important  relatively  to  the  broad  and  non-specialized  faculties 
of  judgment,  promptness,  resource,  carefulness  and  steadfast- 
ness of  purpose. 

And  we  may  conclude  that  the  rarity  of  the  natural 
abilities  and  the  expensiveness  of  the  special  r^^^^  adjust- 
training  required  for  the  work  affect  normal  ™ent  of  Earn- 
Earnings  of  Management  in  much  the  same  way  cuity  and  im- 
as  they  do  the  normal  wages  of  skilled  labour,  portance  of  the 

•^  ^  °  work    done    is 

In  either  case  a  rise  in  the  income  to  be  earned  fairly  accu- 

sets  in  operation  forces  tending  to  increase  the 

supply  of  those  capable  of  earning  it ;  and  in  either  case  the 

M.  21 


322  BOOK  VI.   CH.  VII.  §  5. 

extent  to  which  the  supply  will  be  increased  by  a  given  rise 
of  income,  depends  upon  the  social  and  economic  condition 
of  those  from  whom  the  supply  is  drawn.  For  though  it  is 
true  that  an  able  business  man  who  starts  in  life  with  a  great 
deal  of  capital  and  a  good  business  connection  is  likely  to 
obtain  higher  Earnings  of  Management  than  an  equally  able 
man  who  starts  without  these  advantages;  yet  there  are 
similar,  though  smaller,  inequalities  between  the  earnings  of 
professional  men  of  equal  abilities  who  start  with  unequal 
social  advantages;  and  the  wages  even  of  a  working  man 
depend  on  the  start  he  has  had  in  life  almost  as  much  as  on 
the  expense  which  his  father  has  been  able  to  afford  for  his 
education  \ 

1  Some  difficulties  in  obtaining  accurate  knowledge  of  the  true  Earnings 
of  Management  in  different  trades  are  indicated  in  Principles  VI.  vn.  7. 


CHAPTER   VIII. 

DEMAND  AND   SUPPLY  IN   RELATION  TO   CAPITAL  AND 
BUSINESS   POWER,  CONCLUDED. 

§  1 .     The  profits  of  a  business  are  the  excess  of  its  receipts 
over  its  outgoings,  and  the  annual  rate  of  profits  is  the  ratio 
which  the  yearly  profits  bear  to  the  capital  in-  y^^  h^ve  next 
vested.     We  have  next  to  inquire  whether  there  *°  examine  the 

^  tendency  of  the 

is  any  general  tendency  of  the  rate  of  profits  to  rate  of  profits 

-,.,  to  equality. 

equality. 

Adam   Smith  said : — "  The  whole  drugs  which   the  best 
employed  apothecary  in  a  large  market-town  will  sell  in  a 
year  may  not  perhaps  cost  him  above  thirty  or  forty  pounds. 
Though  he  should  sell  them,  therefore,  for  three  variations  in 
or  four  hundred  or  a  thousand  per  cent,  profit  nominal  profits 

/•  1      ,  11  between  large 

this  may  irequently  be  no  more  than  the  reason-  and  small 
able  wages   of   his  labour   in  the  only  way  in  businesses, 
which  he  can  charge  them,  upon  the  price  of  the  drugs.     The 
greater  part  of  the  apparent  profit  is  real  wages  disguised  in 
the  garb  of  profit." 

But  it  is  important  to  distinguish  between  the  annual 
rate  of  profits  on  the  capital  invested  in  a  p^ 
business,  and  the  rate  of  profits  that  are  made  annum  and  on 
every  time  the  capital  of  the  business  is  turned 
over;  that  is  every  time  sales  are  made  equal  to  that 
capital,  or  the  rate  of  profits  on  the  turnover.  At  present  we 
are  concerned  with  profits  per  annum. 

The  greater  part  of  the  nominal  inequality  between  the 
normal  rates  of  profit  in  small  businesses  and  in  large  would 
disappear,  if  the  scope  of  the  term  profits  were  narrowed  in 

•  21—2 


324  BOOK  VI.   CH.  VIII.  §§  1,  2. 

the  former  case  or  widened  in  the  latter,  so  that  it  included 
-  in   both    cases   the   remuneration    of    the    same 

Correction     of 

an  anomaly  of  classes  of  services.  There  are  even  reasons  for 
anguage.  thinking  that  the  rate  of  profit,  rightly  estimated, 

on  large  capitals  tends  to  be  higher  than  on  small.  For  of  two 
businesses  competing  in  the  same  trade,  that  with  the  larger 
capital  can  nearly  always  buy  at  the  cheaper  rate,  and  can 
avail  itself  of  many  economies  in  the  specialization  of  skill  and 
machinery  and  in  other  ways,  which  are  out  of  the  reach  of 
the  smaller  business :  while  at  most  the  only  important  ad- 
vantage, which  the  latter  is  likely  to  have,  consists  of  its 
greater  facilities  for  getting  near  its  customers  and  consulting 
their  individual  wants.  In  trades  in  which  this  last  advantage 
is  not  important,  and  especially  in  some  manufacturing  trades 
in  which  the  large  firm  can  sell  at  a  better  price  than  the 
small  one,  the  outgoings  of  the  former  are  proportionately  less 
and  the  incomings  larger;  and  therefore,  if  the  profits  be 
reckoned  in  the  same  way  in  both  cases,  the  rate  of  profits 
in  the  former  case  must  be  higher  than  in  the  latter. 

But  these  are  the  very  businesses  in  which  it  most  fre- 
quently happens  that  large  firms  after  first  crushing  out  small 
ones,  either  combine  with  one  another  and  thus  secure  for 
themselves  the  gains  of  a  limited  monopoly,  or  by  keen 
competition  among  themselves  reduce  the  rate  of  profit  very 
low.  There  are  many  branches  of  the  textile,  the  metal,  and 
the  transport  trades  in  which  no  business  can  be  started  at 
all  except  with  a  large  capital;  while  those  that  are  begun 
on  a  moderate  scale  struggle  through  great  difficulties,  in  the 
hope  that,  after  a  time,  it  may  be  possible  to  find  employment 
for  a  large  capital,  which  will  yield  Earnings  of  Management 
high  in  the  aggregate  though  low  in  proportion  to  the  capital. 

There  are  some  trades  which  require  a  very  high  order 
of  ability,  but  in  which  it  is  nearly  as  easy  to  manage  a  very 
large  business  as  one  of  moderate  size.  In  rolling  mills,  for 
instance,   there  is  little  detail  which  cannot  be   reduced  to 

$ 


DEMAND   AND   SUPPLY   IN    RELATION   TO   CAPITAL.       325 

routine,  and  a  capital  of  £1,000,000  invested  in  them  can  be 
controlled  by  one  able  man.  A  rate  of  profits  of  20  per 
cent.,  which  is  not  a  very  high  average  rate  for  some  parts  of 
the  iron  trade,  would  give  the  owner  of  such  works  Earnings 
of  Management  amounting  to  more  than  £150,000  a  year. 
And  since  iron-masters  can  with  so  little  additional  effort 
get  the  Earnings  of  Management  on  an  increased  capital, 
wealthy  men  remain  in  the  trade  longer  than  in  most  others  ; 
and  the  competition  of  the  great  iron-masters  with  one  another 
is  said  to  have  reduced  the  average  rate  of  profits  in  the 
trade  below  the  ordinary  level. 

The  rate  of  profits  is  low  in  nearly  all  those  trades  which 
require  very  little  ability  of  the  highest  order,  and  in  which 
a  public  or  private  firm  with  a  good  connection  and  a  large 
capital  can  hold  its  own  against  new-comers,  so  long  as  it  is 
managed  by  men  of  industrious  habits  with  sound  common 
sense  and  a  moderate  share  of  enterprise.  And  men  of  this 
kind  are  seldom  wanting  either  to  a  well-established  public 
company  or  to  a  private  firm  which  is  ready  to  take  the 
ablest  of  its  servants  into  partnership. 

We  may  then  conclude,  firstly  that  the  true  rate  of  profits 
in  large  businesses  is  higher  than  at  first  sight  General  result 
appears,  because  much  that  is  commonly  counted  of  the  compa- 

.  n  1        .  11  1    rison    between 

as  profits  m  the  small  business  ought  to  be  classed  large  business- 
under  another  head  before  the  rate  of  profits  in  es  and  small, 
it  is  compared  with  that  in  a  large  business :   and  secondly 
that,  even  when  this  correction  has  been  made,  the  rate  of 
profits  declines  generally  as  the  size  of  the  business  increases. 

§  2.     The  normal  Earnings  of  Management  are  of  course 
high  in  proportion  to  the  capital,  and  therefore 
the  rate  of  profits  per  annum  on  the  capital  is  where  the  Cir- 
high,  when  the  work  of  management  is  heavy  in  cuiat»n&  capi- 


L 


proportion    to    the    capital.     Individual    trades  lativeiy  to  the 

have  indeed  peculiarities  of  their  own ;  arid  all 

rules  on  the  subject  are  liable  to  great  exceptions.     But  gene- 


326  BOOK  VI.  CH.  VIII.  §§  2 — 4. 

rally  it  may  be  said  that  the  extent  of  the  work  of  manage- 
ment needed  in  a  business  depends  more  on  the  amount 
of  Circulating  capital  used  than  on  that  of  the  Fixed.  The 
rate  of  profit  tends  therefore  to  be  low  in  trades  in  which 
there  is  a  disproportionately  large  amount  of  durable  plant 
that  requires  but  little  trouble  and  attention  when  once 
it  has  been  laid  down.  As  we  have  seen,  these  trades  are 
likely  to  get  into  the  hands  of  joint-stock  companies  :  and  the 
aggregate  salaries  of  the  directors  and  higher  officials  bear  a 
very  small  proportion  to  the  capital  employed  in  the  case  of 
railway  and  water  companies,  and,  even  in  a  more  marked 
degree,  of  companies  that  own  canals  and  docks  and  bridges  \ 

§  3.  Our  inquiry  may  now  pass  away  from  the  annual 
rate  of  profits  on  the  capital  invested  in  a  business,  to  the 
rate  of  profits  that  are  made  every  time  sales 
profits  on  the  equal  to  the  capital  of  the  business  are  made,  or, 
as  is  commonly  said,  the  rate  of  profits  "  on  the 
turnover."  It  is  clear  that  if  the  average  net  profits  in  two 
businesses  are  twelve  per  cent,  per  annum,  and  the  first  turns 
over  its  capital  4  times  in  the  year  and  the  other  only  once, 
the  profits  on  the  turnover  must  be  twelve  per  cent,  in  the 
latter  case,  and  only  about  three  per  cent,  in  the  former. 
And  we  are  thus  brought  to  consider  the  causes  which  de- 
termine the  rate  of  profits  on  the  "turnover;"  or,  which  comes 
to  the  same  thing,  the  percentage  of  the  supply  price  of  a 
commodity  which  has  to  be  classed  as  profits. 

It  is  obvious  that  wholesale  dealers,  who  buy  and  sell 
large  quantities  of  produce  in  single  transactions,  and  who  are 
able  to  turn  over  their  capital  very  rapidly,  may  make  large 

1  Profits  are  exceptionally  high  where  the  wages-bill  is  very  large  re- 
latively to  the  capital.  This  subject  is  treated  in  Principles  VI,  viii.  2  where 
it  is  argued  that  the  least  inaccurate  of  all  the  broad  statements  that  can  be 
made  with  regard  to  a  general  tendency  of  profits  to  eqiiality  in  different 
trades,  is  that  where  equal  capitals  are  employed,  profits  tend  to  be  a  certain 
percentage  per  annum  on  the  total  capital,  together  with  a  certain  percentage 
on  the  wages-bill. 


DEMAND   AND   SUPPLY   IN    RELATION   TO   CAPITAL.       327 

fortunes  though  their  average  profits  on  the  turnover  are  less 
than  one  per  cent. ;  and,  in  the  extreme  case  of 

1  111  IT  -L  ii  It  varies  more 

large  stock  exchange  dealings,  even  when  they  widely      than 
are  only  a  small  fraction  of  one  per  cent.     But  a  ^^^  annual  rate 

1  •    1      •!  1  11  1  •    1    °^    profits     on 

shipbuilder  who  has  to  put  labour  and  material  capital.  lUus- 
into  the  ship,  and  to  provide  a  berth  for  it,  a  long  ^^^^'""^  '"^*^"" 
while  before  it  is  ready  for  sale,  and  who  has  to 
take  care  for  every  detail  connected  with  it,  must  add  a  very 
high  percentage  to  his  direct  and  indirect  outlay  in  order  to  re- 
munerate him  for  his  labour,  and  the  locking  up  of  his  capital. 

Again,  in  the  textile  industries  some  firms  buy  raw  material 
and  turn  out  finished  goods,  while  others  confine  themselves 
to  spinning,  to  weaving,  or  to  finishing  :  and  it  is  obvious  that 
the  rate  of  profit  on  the  turnover  of  one  of  the  first  class  must 
be  equal  to  the  sum  of  the  rates  of  profit  of  one  of  each  of  the 
three  other  classes.  Again,  the  retail  dealers'  profit  on  the 
turnover  is  often  only  five  or  ten  per  cent,  for  commodities 
which  are  in  general  demand,  and  which  are  not  subject  to 
changes  of  fashion;  so  that  while  the  sales  are  large,  the 
necessary  stocks  are  small,  and  the  capital  invested  in  them 
can  be  turned  over  very  rapidly,  with  very  little  trouble  and 
no  risk.  But  a  profit  on  the  turnover  of  nearly  a  hundred 
per  cent,  is  required  to  remunerate  the  retailer  of  some  kinds 
of  fancy  goods  which  can  be  sold  but  slowly,  of  which  varied 
stocks  must  be  kept,  which  require  a  large  space  for  their 
display,  and  which  a  change  of  fashion  may  render  unsaleable 
except  at  a  loss ;  and  even  this  high  rate  is  often  exceeded  in 
the  case  of  fish,  fruit,  flowers  and  vegetables. 

We  see  then  that  there  is  no  general  tendency  of  profits 
on  the  turnover  to  equality ;  but  there  may  be,  and  as  a  matter 
of  fact  there  is  in  each  trade  and  in  every  branch  of  each 
trade,  a  more  or  less  definite  rate  of  profits  on  the  turnover 
which  is  regarded  as  a  "fair"  or  normal  rate^. 

§  4.     During  all  this  inquiry  we  have  had  in  view  chiefly 

1  See  Principles  VI,  viii.  4. 


328  BOOK  VI.  CH.  VIII.  §§  4,  5. 

the  long-period  or  true  normal  results  of  economic  forces; 
Profits  are  a  ^®  have  considered  the  way  in  which  the  s-upply 
constituent        of  business  ability  in  command  of  capital  tends 

element  of  •         i        i  t  •        ip 

normal  supply,  m  the  long  run  to  adjust  itself  to  the  demand; 
P"ce.  ^g  have  seen  how  under  the  action  of  the  Law 

of  Substitution  it  seeks  constantly  every  business  and  every 
method  of  conducting  every  business  in  which  it  can  render 
services  that  are  so  highly  valued  by  persons  who  are  able 
to  pay  good  prices  for  the  satisfaction  of  their  wants,  that 
those  services  will  in  the  long  run  earn  a  high  reward.  The 
motive  force  is  the  competition  of  undertakers :  each  one 
tries  every  opening,  forecasting  probable  future  events,  re- 
ducing them  to  their  true  relative  proportions,  and  considering 
what  surplus  is  likely  to  be  afforded  by  the  receipts  of  any 
undertaking  over  the  outlay  required  for  it.  All  his  pro- 
spective gains  enter  into  the  profits  which  draw  him  towards 
the  undertaking;  all  the  investments  of  his  capital  and 
energies  in  making  the  appliances  for  future  production,  and 
in  building  up  the  "Immaterial"  capital  of  a  business  con- 
nection, have  to  show  themselves  to  him  as  likely  to  be 
profitable,  before  he  will  enter  on  them  :  the  whole  of  the 
profits  which  he  expects  from  them  enter  into  the  reward, 
which  he  expects  in  the  long  run  for  his  venture.  And  if  he 
is  a  man  of  normal  ability  (normal  that  is  for  that  class  of 
work),  and  is  on  the  margin  of  doubt  whether  to  make  the 
venture  or  not,  they  may  be  taken  as  true  representatives  of 
the  (marginal)  normal  expenses  of  production  of  the  services 
in  question.  Thus  the  whole  of  the  normal  profits  enter  into 
true  or  long-period  supply  price. 

But  so  soon  as  his  skill,  his   material   capital,    and    his 
^     ,    .  business  connection  are  to  any  extent  specialized 

Butthe  income  •'  ^ 

derived  from  to  any  One  branch  of  business ;  then  to  that 
iWsted^is^gt-  extent  the  income  earned  by  these  factors  of 
neraiiy   deter-  production  cease  to  cxert  a  direct  influence  on 

mined   by  .i  •,  «     , 

price.  the  value  of  the  products  due  to  them :  and  on 


DEMAND   AND   SUPPLY   IN   RELATION   TO   CAPITAL.       329 

the  other  hand  the  value  of  those  products  (in  conjunction 
with  the  other  circumstances  of  the  case)  determines  the 
income  which  can  be  derived  from  these  factors'. 

The  reader  is  referred  to  the  application  of  this  doctrine 
to  the  earnings  of  industrial  skill,  which  is  given  in  the  fifth 
Chapter  of  this  Book ;  for  the  argument  of  that  Chapter  is 
valid  generally  with  regard  to  the  earnings  of  business  power. 
There  are,  however,  some  differences  between  the  two  cases, 
which  call  for  our  study. 

§  5.  In  the  first  place  the  undertaker's  profits  bear  the 
first  brunt  of  any  change  in  the  price  of  those  Profits  fluctu- 
things  which  are  the  product  of  his  capital  ^nd'^\*i' ^^^"^ 
(including  his  business  organization),  of  his  greater  ratio : 
labour  and  of  the  labour  of  his  employes ;  and  as  a  result 
fluctuations  of  his  profits  generally  precede  fluctuations  of 
their  wages,  and  are  much  more  extensive.  For,  other  things 
being  equal,  a  comparatively  small  rise  in  the  price  for  which 
he  can  sell  his  product  is  not  unlikely  to  increase  his  profit 
manyfold,  or  perhaps  to  substitute  a  profit  for  a  loss.  That 
rise  will  make  him  eager  to  reap  the  harvest  of  good  prices 
while  he  can;  he  will  be  in  fear  that  his  employes  will  leave 
his  employment  or  refuse  to  work.  He  will  be  more  able 
and  more  willing  to  pay  high  wages ;  and  wages  ^^^  ^j^g  wages 
will  rise.     But  experience  shows  that  (whether  of  employes  lag 

,.  ,.  \     ,  behind,        and 

they  are  governed  by  sliding  scales  or  not)  they  their    fluctua- 
seldom  rise  as  much  in  proportion  as  prices  ;  and  **°"^  ^^^  ^^^^' 
therefore  they  do  not  rise  nearly  as  much  in  proportion  as 
profits. 

Another  aspect  of  the  same  fact  is  that  when  trade  is 
bad,  the  employe  at  worst  is  earning  nothing  towards  the 
support  of  himself  and  his  family  ;  but  the  employer's  out- 
goings are  likely  to  exceed  his  incomings,  particularly  if  he 
is  using  much  borrowed  capital.  In  that  case  his  Gross 
Earnings  of  Management  are  a  negative  quantity ;  that  is,  he 
1  I.e.  it  determines  what  we  have  called  their  Quasi-rent. 


330  BOOK  VI.   CH.  YIII.   §§  5,  6. 

is  losing  his  capital.  In  very  bad  times  this  happens  to  a 
great  number,  perhaps  the  majority  of  undertakers;  and  it 
happens  almost  constantly  to  those  who  are  less  fortunate,  or 
less  able,  or  less  well  fitted  for  their  special  trade  than  others. 
§  6.  To  pass  to  another  point,  the  number  of  those  who 
The  rofits  of  ^^^^®®^  ^^  business  is  but  a  small  per-centage  of 
individuals  the  whole ;  and  in  their  hands  are  concentrated 
widei^th^n  ^^®  fortunes  of  others  several  times  as  numerous 
ordinary  earn-  jj,s  themselves,  who  have  made  savinijs  of  their 

ings  do.  .  . 

own,  or  who  have  inherited  the  savings  of  others 
and  lost  them  all,  together  with  the  fruits  of  their  own  efforts, 
in  unsuccessful  business.  In  order  therefore  to  find  the 
average  profits  of  a  trade  we  must  not  divide  the  aggregate 
profits  made  in  it  by  the  number  of  those  who  are  reaping 
them,  nor  even  by  that  number  added  to  the  number  who 
have  failed :  but  from  the  aggregate  profits  of  the  successful 
we  must  subtract  the  aggregate  losses  of  those  who  have 
failed,  and  perhaps  disappeared  from  the  trade ;  and  we  must 
then  divide  the  remainder  by  the  sum  of  the  numbers  of  those 
who  have  succeeded  and  those  who  have  failed.  It  is  probable 
that  the  true  Gross  Earnings  of  Management,  that  is,  the 
excess  of  profits  over  interest,  is  not  on  the  average  more  than 
a  half,  and  in  some  risky  trades  not  more  than  a  tenth  part, 
of  what  it  appears  to  be  to  persons  who  form  their  estimate 
of  the  profitableness  of  a  trade  by  observation  only  of  those 
who  have  secured  its  prizes.  There  are  however  reasons  for 
thinking  that  the  risks  of  trade  are  on  the  whole  diminishing 
rather  than  increasing  \ 

1  There  are  other  differences  bettveen  the  earnings  of  business  power  and 
of  ordinary  earnings,  for  a  study  of  which,  as  well  as  of  the  relation  in  which 
Earnings  of  Management  stand  to  the  Kent  of  exceptional  ability,  the  reader 
is  referred  to  Principles  VI,  viii.  9,  10. 


CHAPTER  IX. 

demand  and  supply  in  relation  to  land, 
producer's  surplus. 

§  1.  We  have  next  to  consider  Demand  and  Supply  in 
relation  to  land.  This  subject  is  closely  connected  with  the 
problem  of  land  tenure.     But  in  order  to  avoid  „, 

^  R6sum6       and 

for  the  present  the  difficulties  that  arise  from  the  application  of 
varying  conditions  of  tenure  in  different  places,  in^Bo<?klv^*as 
we  will  follow  the  plan  adopted  in  our  study  of  *°  *^^  action  of 

IT  i.    -r^.      •     .  1  .  -n.  .  .       /  theLawofDi- 

the  Law  or   Diminishing  Return  m  agriculture  minishing  Re- 
in the  fourth  Book  and  still  suppose  that  the  *"*^"* 
owner  of  the  land  undertakes  its  cultivation. 

We  saw  how  the  return  to  successive  doses  of  capital 
and  labour,  though  it  may  increase  for  the  first  few  doses, 
will  begin  to  diminish,  when  the  land  is  already  well  culti- 
vated. The  cultivator  continues  to  apply  additional  capital 
and  labour,  till  he  reaches  a  point  at  which  the  return 
to  a  dose  is  only  just  sufficient  to  repay  his  outlay  and 
reward  him  for  his  own  work.  That  dose  will  be  on  the 
margin  of  cultivation,  whether  it  happens  to  be  applied  to 
rich  or  to  poor  land ;  an  amount  equal  to  the  return  to  it  will 
be  required,  and  will  be  sufficient  to  repay  him  for  each  of  his 
previous  doses.  The  excess  of  the  gross  produce  over  this 
amount  is  his  Producer's  Surplus. 

He  looks  forward  as  far  as  he  can :  but  it  is  seldom 
possible  to  look  forward  very  far.  And  at  any  given  time 
he  takes  for  granted  all  that  richness  of  the  soil  which  results 
from  permanent  improvements;    and  the  income  (or  Quasi- 


332  BOOK  VI.   CH.  IX.   §§1,   2. 

rent),  derived  from  those  improvements,  together  with  that  due 
to  the  original  qualities  of  the  soil,  constitutes  his  Producer's 
Surplus  or  Rent.  Henceforth  it  is  only  the  income  derived 
from  new  investments  that  appears  as  earnings  and  profits : 
he  carries  these  new  investments  up  to  the  margin  of  profit- 
ableness ;  and  his  Producer's  Surplus  or  Rent  is  the  excess  of 
the  gross  income  from  the  improved  land  over  what  is 
required  to  remunerate  him  for  the  fresh  doses  of  capital  and 
labour  he  annually  applies. 

This  Surplus  depends  on,  firstly,  the  richness  of  the  land, 
and  secondly,  the  relative  values  of  those  things  which  he 
has  to  sell  and  of  those  things  which  he  needs  to  buy.  The 
richness  or  fertility  of  the  land,  we  have  seen,  cannot  be 
measured  absolutely,  for  it  varies  with  the  nature  of  the 
crops  raised,  and  with  the  methods  and  intensity  of  culti- 
vation \  Two  pieces  of  land  cultivated  always  by  the  same 
man  with  equal  expenditures  of  capital  and  labour,  are  likely, 
if  they  yield  equal  crops  of  barley,  to  give  unequal  crops  of 
wheat ;  if  they  return  equal  crops  of  wheat  when  cultivated 
slightly  or  in  a  primitive  fashion,  they  are  likely  to  yield 
unequal  crops  when  cultivated  intensively,  or  on  modern 
methods.  Further,  the  prices  at  which  the  various  requisites 
of  the  farm  can  be  bought,  and  its  various  products  sold, 
depend  on  the  Industrial  Environment ;  and  changes  in  that 
are  continually  changing  the  relative  values  of  different  crops 
and  therefore  the  relative  values  of  land  in  different  situations. 

Lastly,  we  suppose  the  cultivator  to  be  of  normal  ability 
^^  ,  .        relatively  to  the  task  he  has  undertaken,  and  the 

The      cultiva-      .  *'  .  tpi-pi 

tors  must  be  circumstances  of  time  and  place.  If  he  is  of  less 
of ^norma*i°  a-  ^t)ility  his  actual  gross  produce  will  be  less  than 
biiity  and  en-  that  which  normally  should  come  from  the  land : 
it  will  be  yielding  to  him  less  than  its  true 
Producer's  Surplus.  If,  on  the  contrary,  he  is  of  more  than 
normal  ability,  he  will  be  getting  in  addition  to  the  Producer's 
1  See  Book  iv.  ch.  m.  §§  3—6. 


DEMAND  AND  SUPPLY  IN  KELATION  TO   LAND.      333 

Surplus  due  to  the  land,  some  Producer's  Surplus  due  to  rare 
ability '. 

§  2.  The  argument  of  this  chapter  so  far  is  applicable  to 
all  systems  of  land  tenure,  which  recognize  private  ^j^g  argument 
ownership  of  land  in  any  form;  for  it  is  con-  so  far  appiic- 
cerned  with  that  Producer's  Surplus,  which  accrues  all  systems'^of 
to  the  owner  if  he  cultivates  his  land  himself;  land  tenure, 
or,  if  he  does  not,  then  accrues  to  him  and  his  tenants,  re- 
garded as  a  firm  engaged  in  the  business  of  cultivation.  Thus 
it  holds  true,  whatever  be  the  division  which  custom  or  law  or 
contract  may  have  arranged  between  them  with  regard  to 
their  several  shares  of  the  cost  of  cultivation  on  the  one  hand, 
and  the  fruits  of  the  cultivation  on  the  other. 

At  the  present  day,  in  those  parts  of  England  in  which 
custom  and  sentiment  count  for  least  in  the  bargaining  for 
the  use  of  land,  and  free  competition  and  enterprise  for  most, 
it  is  commonly  understood  that  the  landlord  supplies,  and  in 
some  measure  maintains,  those  improvements  which  are  slowly 
made  and  slowly  worn  out.  That  being  done,  he  requires  of 
his  tenant  the  whole  Producer's  Surplus  which  the  land  thus 
equipped  is  estimated  to  afford  in  a  year  of  normal  harvests 
and   normal   prices,   after   deducting   enough  to  replace  the 

1  It  is  argued  in  Principles  IV.  ix.  3,  that  a  rise  in  the  real  value  of  produce 
generally  raises  the  produce-value  of  the  Surplus,  and  raises  its  real  value  even 
more,  and  in  the  following  Section  of  that  Chapter,  and  a  Note  at  the  end  of  it, 
some  explanation  is  given  of  Eicardo's  doctrines  as  to  the  influence  of  im- 
provements and  the  incidence  of  taxes  in  agriculture.  He  delighted  to  argue 
that  no  Surplus  can  be  reaped  from  the  ownership  of  those  of  nature's  gifts 
the  supply  of  which  is  everywhere  practically  unlimited:  and  in  particular 
that  there  would  be  no  Surplus  from  land  if  there  were  an  unlimited  supply 
of  it  all  equally  fertile  and  all  equally  accessible.  He  further  showed  that 
an  improvement  in  the  arts  of  cultivation,  equally  applicable  to  all  soils, 
(which  is  equivalent  to  a  general  increase  in  the  natural  fertility  of  land),  will 
be  nearly  sure  to  lower  the  aggregate  Corn  Surplus,  and  quite  sure  to  lower 
the  aggregate  Real  Surplus  derived  from  the  land  that  supplies  a  given  popu- 
lation with  raw  produce.  He  also  pointed  out  that,  if  the  improvements 
affected  chiefly  those  lands  that  were  already  the  richest,  it  might  raise  the 
aggregate  Sui-plus;  but  that,  if  it  affected  chiefly  the  poorer  class  of  lands,  it 
would  lower  that  aggregate  vei-y  much. 


334  BOOK  VI.   OH.  IX.   §  2. 

fanner's  capital  with  normal  profits,  the  farmer  standing  to 
lose  in  bad  years  and  gain  in  good  years.  In  this  estimate  it 
is  implicitly  assumed  that  the  farmer  is  a  man  of  normal 
ability  and  enterprise  for  that  class  of  holding ;  and  therefore, 
if  he  rises  above  that  standard,  he  will  himself  reap  the 
benefit ;  and,  if  he  falls  below  it,  will  himself  bear  the  loss, 
and  perhaps  ultimately  leave  the  farm'. 

The  so-called  English  system  has  great  disadvantages,  and 
it  may  not  be  found  the  best  in  a  future  stage  of  civilization. 
But  when  we  come  to  compare  it  with  other  systems,  we 
shall  see  that  it  afforded  great  advantages  to  a  country,  which 
pioneered  the  way  for  the  world  in  the  development  of  free 
enterprise;  and  which  therefore  was  impelled  early  to  adopt 
all  such  changes  as  give  freedom  and  vigour,  elasticity  and 
strength^. 

1  In  other  words,  that  part  of  the  income  derived  from  the  land  which  has 
to  he  regarded  as  a  Kent  or  a  Quasi-rent,  that  is,  as  Producer's  Surplus  for  all 
periods  of  moderate  length,  goes  to  the  landlord ;  while  that  part  which  is  to 
be  regarded,  even  for  short  periods,  as  profits  entering  directly  into  the 
normal  price  of  the  produce,  is  the  tenant's  share.  The  more  fully  therefore 
the  distinctively  English  features  of  land  tenure  are  developed,  the  more 
nearly  is  it  true  that  the  line  of  division  between  the  tenant's  and  the 
landlord's  share  coincides  with  the  deepest  and  most  important  line  of  cleavage 
in  economic  theory;  viz.,  that  between  the  Quasi-rents  which  do  not,  and  the 
profits  which  do,  directly  enter  into  the  normal  supply  prices  of  produce  for 
periods  of  moderate  length. 

2  Principles  VI.  ix.  6 — 8  continue  that  analysis  of  rent,  with  special 
reference  to  urban  land,  which  is  given  in  Principles  V.  viii.  ix.  x.,  but  is  not 
included  in  this  volume  (see  however  the  footnotes  on  215 — 6  and  234 — 5, 
above).  It  is  there  argued  that  land,  whether  agricultural  or  urban,  is  merely 
a  form  of  capital  when  regarded  from  the  point  of  view  of  its  individual  owner 
or  purchaser:  and  that  when  examining  the  causes  that  determine  normal 
value,  we  must  not  regard  the  ground  rent  of  the  trader  as  entering  into 
the  marginal  price  of  his  services  in  any  sense  in  which  rent  does  not  enter 
into  those  of  the  farmer  or  manufacturer. 

Finally,  in  Principles  VI.  ix.  9  reference  is  made  to  the  causes  which 
govern  the  capitalized  value  of  land,  and  it  is  argued  that  the  present  value  of 
a  very  distant  rise  in  the  value  of  land  is  less  than  is  commonly  supposed. 


CHAPTER  X. 

DEMAND  AND  SUPPLY  IN  RELATION  TO  LAND,  CONTINUED. 
LAND  TENURE. 

§  1.  In  early  times,  and  in  some  backward  countries  even 
in  our  own  age,  all  rights  to  property  depend  on  g^^iy  forms  of 
general  understandings  rather  than  on  precise  Land-tenure 
laws  and  documents.  In  so  far  as  these  under-  been  based  on 
standings  can  be  reduced  to  definite  terms  and  pa'"*"e'"ships. 
expressed  in  the  language  of  modern  business,  they  are 
generally  to  the  following  effect : — The  ownership  of  land 
is  vested,  not  in  an  individual,  but  in  a  firm  of  which  one 
member  or  group  of  members  is  the  sleeping  partner,  while 
another  member  or  group  of  members  (it  may  be  a  whole 
family)  is  the  working  partner. 

The  sleeping  partner  is  sometimes  the  ruler  of  the  State, 
sometimes  he  is  an  individual  who  inherits  what  was  once 
the  duty  of  collecting  the  payments  due  to  this  ruler  from 
the  cultivators  of  a  certain  part  of  the  soil;  but  what,  in 
the  course  of  silent  time,  has  become  a  right  of  ownership, 
more  or  less  definite,  more  or  less  absolute.  The  sleeping 
partner,  or  one  of  them,  is  generally  called  the  proprietor,  or 
landholder  or  landlord,  or  even  the  landowner ;  though  this  is 
an  incorrect  way  of  speaking,  when  he  is  restrained  by  law 
or  custom  from  turning  the  cultivator  out  of  his  holding, 
either  by  an  arbitrary  increase  of  the  payments  exacted  from 
him  or  by  any  other  means'. 

1  Custom  is  however  really  more  elastic  than  at  first  sight  appears,  as  is 
shown  even  hy  recent  EngUsh  history.  Caution  is  therefore  needed  in 
applying  Ricardian  analysis  to  modern  EngUsh  land  problems  as  well  as  to 
those  arising  out  of  more  primitive  systems  of  land  tenure.  See  Principles  VI. 
X.2,  3. 


336  BOOK  VI.   CH.  X.  §  2. 

§  2.  Tn  a  great  part  of  Latin  Europe  the  land  is  divided 
into  holdings,  which  the  tenant  cultivates  by  the 
rental  by  labour   of    himself   and   his   family,    and   some- 

s  ares.  times,  though  rarely,  that  of  a  few  hired  labour- 

ers, and  for  which  the  landlord  supplies  buildings,  cattle  and, 
sometimes  even,  farm  implements.  This  system  is  called 
Metayage.  Its  advantages  are  considerable  when  the  holdings 
are  very  small,  the  tenants  poor,  and  the  landlords  not  averse 
to  taking  much  trouble  about  small  things :  but  it  is  not 
suitable  for  holdings  large  enough  to  give  scope  to  the  enter- 
prise of  an  able  and  responsible  tenant.  It  is  commonly 
associated  with  the  system  of  peasant  proprietorship ;  and  we 
may  consider  that  next\ 

The  position  of  a  peasant  proprietor  has  great  attractions. 
The  peasant  -^^  ^^  ^^®®  *^  ^^  what  he  likes,  he  is  not  worried 
proprietor  by  the  interference  of  a  landlord,  and  the  anxiety 
lest  another  should  reap  the  fruits  of  his  work  and  self- 
denial.  His  feeling  of  ownership  gives  him  self-respect,  and 
stability  of  character,  and  makes  him  provident  and  tem- 
perate in  his  habits.  He  is  scarcely  ever  idle,  and  seldom 
regards  his  work  as  mere  drudgery ;  it  is  all  for  the  land 
that  he  loves  so  well. 

"The  magic  of  property  turns  sand  into  gold,"  said 
Arthur  Young.  It  undoubtedly  has  done  so  in  many  cases 
in  which  the  proprietors  have  been  men  of  exceptional  energy. 
But  such  men  might  perhaps  have  done  as  well  or  better  if 
their  horizon  had  not  been  limited  to  the  narrow  hopes  of  a 
peasant  proprietor.  For  indeed  there  is  another  side  to  the 
is  generally  an  picture.  "  Land,"  we  are  told,  "  is  the  best 
industrious  but  savin^s-bank  for  the  working  man."     Sometimes 

seldom  an  em-  o  o 

cient  worker  it  is  the  second  best.  But  the  very  best  is  the 
energy  of   himself   and  his  children;   and  the  peasant  pro- 

1  Metayage  enables  a  poor  man  to  get  the  use  of  capital  at  a  low  charge, 
and  to  have  more  freedom  and  responsibility  than  a  hired  labourer,  though 
less  than  an  English  farmer.    It  is  a  form  of  Co-operation. 


DEMAND  AND   SUPPLY   IN   RELATION   TO  LAND.       337 

prietors'  thoughts  are  so  full  of  the  one  that  they  often 
starve  the  other.  Many  even  of  the  richest  of  them  stint 
the  food  of  themselves  and  their  families :  they  pride  them- 
selves on  the  respectability  of  their  houses  and  furniture; 
but  they  live  in  their  kitchens  for  economy,  and  are  practically 
worse  housed  and  far  worse  fed  than  the  better  class  of 
English  cottagers.  And  the  poorest  of  them  work  hard 
during  very  long  hours,  but  do  not  really  get  through  much 
work,  because  they  feed  themselves  worse  than  the  poorest 
English  labourers.  They  do  not  understand  that  wealth  is 
useful  only  as  the  means  towards  a  real  income  of  happiness ; 
they  sacrifice  the  end  to  the  means. 

And  it  must  be  recollected  that  the  English  labourers 
represent  the  failures  rather  than  the  successes 

-    ,       ^  -  _,,  ^  and  he  is   not 

of  the  English  system.  They  are  the  descendants  so  well  repre- 
of  those  who  for  many  successive  generations  New  World  as 
have  not  availed  themselves  of  the  opportunities  the  English  la- 
by  which  their  abler  and  more  adventurous 
neighbours  were  rising  to  leading  posts  at  home,  and,  what  is 
far  more  important,  were  acquiring  the  fee  simple  of  a  great 
part  of  the  surface  of  the  globe.  Of  the  causes  which  have 
contributed  to  make  the  English  race  the  chief  owners  of  the 
New  World,  the  most  important  is  that  bold  enterprise  which 
has  made  a  man,  who  is  rich  enough  to  be  a  peasant  proprietor, 
generally  refuse  to  be  content  with  the  humdrum  life  and  the 
narrow  income  of  a  peasant.  And  among  the  causes  which 
have  fostered  this  enterprise,  none  is  more  important  than 
the  absence  of  the  temptations  to  wait  about  for  a  petty 
inheritance,  and  to  marry  for  the  sake  of  property  rather 
than  in  the  free  exercise  of  individual  choice — temptations 
which  have  often  dulled  the  energy  of  youth  in  places  in 
which  peasant  properties  have  predominated. 

It  is  partly  in  consequence  of  the  absence  of  these  temp- 
tations that  the  "farmers"  of  America,  though  The  American 
they  are  men  of  the  working  class  cultivating  former. 

M.  22 


3S8  BOOK  VI.  CH.  X.  §§  2 — 4. 

their  own  land  with  their  own  hands,  do  not  resemble  "peasant 
proprietors \"  They  invest  their  income  freely  and  wisely  in 
developing  the  energies  of  themselves  and  their  children ', 
and  these  energies  constitute  the  chief  part  of  their  capital, 
for  their  land  generally  is  as  yet  of  but  little  value.  Their 
minds  are  always  active,  and  though  many  of  them  have 
little  technical  knowledge  of  agriculture,  their  acuteness  and 
versatility  enable  them  to  find  out  almost  unerringly  the  best 
solution  of  the  problem  immediately  before  them. 

That  problem  is  generally  to  obtain  a  produce  large  in 

.  proportion   to   the   labour   spent   on  it,   though 

methods  of     small  in  proportion  to  the  abundant  land  at  their 

cu  tivation.     (jjgpQsal.     In  some  parts  of  America  however,  in 

which  land  is  beginning  to  get  a  scarcity  value,  and  in  which 

the  immediate  neighbourhood  of  good  markets  is  making  an 

intensive  cultivation  profitable,  the  methods  of  farming  and 

of  tenure  are  rearranging  themselves  on  the  English  model. 

And  within  the  last  few  years  there  have  been  signs  of  a 

tendency  on  the  part  of  native  Americans  to  hand  over  to 

persons  of  recent  European  origin  the  farms  of  the  West,  as 

they  have  already  done  the  farms  of  the  East,  and  as  they 

did  long  ago  the  textile  industries. 

§  3.  Let  us  then  turn  to  the  English  system  of  tenure. 
The  En  lish  Faulty  and  harsh  as  it  has  been  in  many  respects, 
system  it  yet  had  a  great  power  of  stimulating  and  econo- 

mizing that  enterprise  and  energy,  which,  aided  by  England's 
geographical  advantages  and  freedom  from  devastating  wars, 
gave  her  the  leadership  of  the  world  in  Manufacture  and 
Colonization  and,  though  in  a  less  marked  degree,  in  Agri- 
culture.     England    has    learnt    lessons   in   agriculture   from 

1  Three-fourths  of  the  farms  in  the  IJnited  States  are  cultivated  by  their 
owners;  and  only  one-third  of  the  remainder  is  held  by  tenants  under  the 
English  plan,  while  two-thirds  are  in  a  position  somewhat  similar  to  that  of 
Metayers,  except  that  they  hold  under  definite  contracts  which  are  but  httle 
influenced  by  custom. 


DEMAND  AND  SUPPLY   IN   RELATION   TO  LAND.       339 

many  countries  and  especially  the  Netherlands ;  but  on  the 
whole  she  has  taught  far  more  than  she  has  learnt.  And 
there  is  now  no  country  except  the  Netherlands,  which  can 
compare  with  her  in  the  amount  of  produce  per  acre  of  fertile 
land ;  and  no  country  in  Europe  which  obtains  nearly  so  high 
returns  in  proportion  to  the  labour  expended  in  getting  them. 
The  chief  merit  of  the  system  is  that  it  enables  the  land- 
lord to  keep  in  his  own  hands  the  responsibility 
for  that  part  and  only  that  part  of  the  property  landlord  to 
which  he  can  look  after  with  but  little  trouble  to  ^"pp^^,      *^^* 

capital       over 

himself,  and  little  vexation  to  his  tenant.  His  which  he  can 
part  consists  of  land,  buildings  and  permanent  ^  *^°"  ^°  ' 
improvements ;  and  averages  in  England  five  times  that  which 
the  farmer  has  to  supply  himself.  The  landlord  is  willing  to 
supply  this  five-sixths  of  the  necessary  capital  at  a  net  rent, 
which  seldom  gives  as  much  as  three  per  cent,  interest  on 
its  cost ;  and  there  is  no  other  business  in  which  the  enter- 
prising undertaker  can  borrow  what  capital  he  wants  at  so  low 
a  rate,  or  can  often  borrow  so  large  a  part  of  his  capital  at  any 
rate  at  all. 

The  second  merit  of   the  English  system,   which  partly 
follows  from  the  first,  is  that  it  gives  the  land- 
lord considerable  freedom  in  the  selection  of  an  consideSbfe 
able  and  responsible  tenant.     But  it  is  true  that  freedom  of 
his  good  and  bad  qualities  alike  often  tend  to 
prevent  his  selecting  tenants  on  strictly  commercial  principles. 
He  seldom  goes  far  afield  for  a  new  tenant :  and  until  quite 
recently,  he  has  seldom  given  facilities  for  an  able  working 
man,  similar  in  character  to  the  American  farmer,  to  make  a 
start  on  a  small  farm  which  he  can  cultivate  with  his  own 
hands  and  those  of  his  family  and  a  few  hired  men\ 

§  4.     We  may  next  inquire  how  far  those  general  ten- 

1  The  English  system  on  the  whole  tends  to  promote  the  discovery  and  the 
diffusion  of  improved  methods :  but  even  in  England  progress  in  agriculture  is 
Blower  than  in  manufactures.    See  Principles  VL  x.  7. 

22-^2 


340  BOOK  VI.   CH.  X.  §  4 

dencies  towards  production  on  a  large  scale,  which  we  studied 
in  Book  iv.,  are  applicable  to  agriculture  under  modern 
English  conditions. 

Firstly,  agriculture  must  be  spread  over  the  broad  land : 
g  .  J  ^  raw  material  can  be  brought  to  the  manufacturer 
ditionsofagri-  for  him  to  work  on ;  but  the  agriculturist  must 
seek  his  work.  Again,  the  workers  on  the  land 
must  adapt  their  work  to  the  seasons,  and  can  seldom  confine 
themselves  entirely  to  one  class  of  work ;  and  in  consequence 
agriculture,  even  under  the  English  system,  cannot  move  fast 
in  the  direction  of  the  methods  of  manufacture. 

But  yet  there  are  considerable  forces  tending  to  push  it 
in  that  direction.  The  progress  of  invention  is  constantly 
increasing  the  number  of  serviceable,  but  expensive  machines, 
for  most  of  which  a  small  farmer  can  find  employment  during 
only  a  very  short  time.  He  may  hire  some  of  them  from 
people  who  make  it  their  business  to  undertake  steam  plough- 
ing and  thrashing ;  but  there  are  many,  the  use  of  which  can 
be  got  only  by  co-operation  with  his  neighbours;  and  the 
uncertainties  of  the  weather  prevent  this  plan  from  working 
very  smoothly  in  practice. 

Again,  the  farmer  must  go  beyond  the  results  of  his  own 
It  aff  rds  n  ^^^  ^^^  father's  experience  in  order  to  keep 
increasing  abreast  of  the  changes  of  the  day.  He  should  be 
bu^i*ness^  *^  able  to  follow  the  movements  of  agricultural 
ability.  science  and  practice  closely  enough  to  see  their 

chief  practical  applications  to  his  own  farm.  To  do  all  this 
properly  requires  a  trained  and  versatile  mind ;  and  a  farmer 
who  has  these  qualities  could  find  time  to  direct  the  general 
course  of  the  management  of  several  hundred,  or  even  of 
several  thousand  acres ;  and  the  mere  superintendence  of  his 
men's  work  in  matters  of  detail  is  not  a  task  fitting  for  him. 
The  work  which  he  ought  to  do  is  as  difficult  as  that  of  a 
large  manufacturer;  and  he  would  never  dream  of  spending 
his  own  strength  on  minute  supervision  which  he  can  easily 


DEMAND  AND   SUPPLY  IN   RELATION   TO   LAND.      341 

hire  subordinates  to  do.  A  farmer  who  can  do  this  higher 
work,  must  be  wasting  his  strength  on  work  that  is  beneath 
him,  unless  he  employs  many  gangs  of  workmen,  each  of  them 
under  a  responsible  foreman.  But  there  are  not  many  farms 
which  give  scope  for  this,  and  there  is  therefore  very  little 
inducement  for  really  able  men  to  enter  the  business  of 
farming ;  the  best  enterprise  and  ability  of  the  country  gene- 
rally avoid  agriculture  and  go  to  trades  in  which  there  is 
room  for  a  man  of  first-rate  ability  to  do  nothing  but  high 
class  work,  to  do  a  great  deal  of  it,  and  therefore  to  get  high 
Earnings  of  Management. 

The  experiment  of  working  farms  on  a  very  large  scale  is 
difficult  and  expensive ;  because,  to  be  tried  properly,  it  would 
require  farm  buildings  and  means  of  communication  specially 
adapted  to  it ;  and  it  would  have  to  overcome  a  good  deal  of 
resistance  from  custom  and  sentiment  not  altogether  of  an 
unhealthy  kind.  The  risk  also  would  be  great;  for  in  such 
cases  those  who  pioneer  often  fail,  though  their  route  when 
well  trodden  may  be  found  to  be  the  easiest  and  best. 

If  a  farm  is  not  very  large,  and  if,  as  is  often  the  case,  the 
farmer  has  no  greater  ability  and  activity  of  ^^^ 
mind  than  is  commonly  to  be  found  among  the  who  works 
better  class  of  working  foremen  in  manufactures,  ^*  *^  "^^"* 
then  it  would  be  best  for  others,  and  in  the  long  run  for  him- 
self, that  he  should  return  to  the  old  plan  of  working  among 
his  men.  Perhaps  also  his  wife  might  return  to  some  of  those 
lighter  tasks  in  and  near  the  farmhouse  which  tradition 
ascribes  to  her.  They  require  discretion  and  judgment,  they 
are  not  inconsistent  with  education  and  culture ;  and  combined 
with  it  they  would  raise  and  not  lower  the  tone  of  her  life, 
and  her  real  claims  to  a  good  social  position.  There  is  some 
reason  for  thinking  that  the  stern  action  of  the  principle  of 
natural  selection  is  now  displacing  those  farmers,  who  have 
not  the  faculty  to  do  difficult  head-work,  and  yet  decline  to 
do  hand-work.     Their  places  are  being  taken  by  men  of  more 


342  BOOK  VI.  CH.  X.  §§  4,  5. 

than  average  natural  ability  who,  with  the  help  of  modern 
education,  are  rising  from  the  ranks  of  labourers;  who  are 
quite  able  to  manage  the  ordinary  routine  work  of  a  model 
farm;  and  who  are  giving  to  it  a  new  life  and  spirit  by 
calling  their  men  to  come  and  work,  instead  of  telling  them 
to  go  and  work.  Very  large  farms  being  left  out  of  view,  it 
is  with  rather  small  farms  worked  on  these  principles  that 
the  immediate  future  of  English  agriculture  seems  to  lie. 
Very  small  Very  Small  holdings  however  have  great  advan- 
hoidings.  tages  wherever  so  much  care  has  to  be  given  to 
individual  plants,  that  machinery  is  out  of  place ;  and  there 
is  reason  for  hoping  that  they  will  continue  to  hold  their  own 
in  raising  vegetables,  flowers  and  fruit. 

§  5.  We  may  next  consider  how  far  landlords  will  in 
their  own  interest  adjust  the  size  of  holdings  to 
of  landlords  the  real  needs  of  the  people.  Small  holdings 
public  °as  re-  ^^^^^  require  more  expensive  buildings,  roads 
gards  small  and  fcnces,  and  involve  greater  trouble  and  in- 
cidental expenses  of  management  to  the  land- 
lord in  proportion  to  their  acreage  than  do  large  holdings; 
and  while  a  large  farmer  who  has  some  rich  land  can  turn 
poor  soils  to  good  account,  small  holdings  will  not  flourish 
generally  except  on  good  soiP.  Their  gross  rental  per  acre 
must  therefore  always  be  at  a  higher  rate  than  that  of  large 
farms.  But  it  is  contended  that,  especially  when  land  is 
heavily  burdened  by  settlements,  landlords  are  unwilling  to 
incur  the  expense  of  subdividing  farms,  unless  they  see  their 
way  to  rents  for  small  holdings  that  will  give  them,  in 
addition  to  high  profits  on  their  outlay,  a  heavy  insurance 

1  The  interpretation  of  this  term  varies  with  local  conditions  and  individual 
wants.  On  permanent  pasture  land  near  a  town  or  an  industrial  district  the 
advantages  of  small  holdings  are  perhaps  at  their  maximum,  and  the  disad- 
vantages at  their  minimum.  If  the  land  is  arable,  it  must  not  he  light,  but 
strong,  and  the  richer  the  better ;  and  this  is  especially  the  case  with  holdings 
so  small  as  to  make  much  use  of  the  spade.  If  the  land  is  hilly  and  broken 
the  small  cultivator  loses  but  little  from  his  want  of  command  of  machinerj'. 


DEMAND  AND  SUPPLY   IN   RELATION  TO  LAND.      343 

fund  against  the  chance  of  having  to  throw  the  holdings 
together  again ;  and  that  the  rental  for  small  holdings,  and 
especially  for  those  of  only  a  few  acres,  is  extravagantly  high 
in  many  parts  of  the  country.  Sometimes  the  prejudices  of  the 
landlord  and  his  desire  for  undisputed  authority  make  him 
positively  refuse  to  sell  or  let  land  to  persons  who  are  not  in 
harmony  with  him  on  social,  political  or  religious  questions; 
but  it  seems  certain  that  evils  of  this  kind  have  always 
been  confined  to  a  few  districts,  and  that  they  are  rapidly 
diminishing. 

But  they  rightly  attract  much  attention.  For  there  is  a 
public  need  for  small  holdings,  as  well  as  large,  in  every 
district.  They  increase  the  number  of  people  who  are 
working  in  the  open  air  with  their  heads  and  their  hands :  and 
by  giving  the  agricultural  labourer  a  stepping-stone  upwards, 
they  tend  to  prevent  him  from  being  compelled  to  leave  agri- 
culture to  find  some  scope  for  his  ambition,  and  thus  check 
the  great  evil  of  the  continued  flow  of  the  ablest  and  bravest 
farm  lads  to  the  towns. 

Moreover  very  small  holdings,  which  can  be  worked  by 
people  who  have  some  other  occupation,  and  also 

^      ^  ,  ,  .  ,  .  Allotments. 

allotments  and  large  gardens,  render  great  services 
to  the  State,  as  well  as  to  those  who  cultivate  them.  They 
break  the  monotony  of  existence,  they  give  a  healthy  change 
from  indoor  life,  they  offer  scope  for  variety  of  character  and 
for  the  play  of  fancy  and  imagination  in  the  arrangement  of 
individual  life ;  they  afford  a  counter  attraction  to  the  grosser 
and  baser  pleasures ;  they  often  enable  a  family  to  hold 
together  that  would  otherwise  have  to  separate;  under 
favourable  conditions  they  improve  considerably  the  material 
condition  of  the  worker ;  and  they  diminish  the  fretting  as 
well  as  the  positive  loss  caused  by  the  inevitable  interruptions 
of  their  ordinary  work. 

And  lastly  though  peasant  proprietorship,  as  a  system,  is 
unsuited  to  the  economic  conditions  of  England,  to  her  soil, 


344  BOOK  VI.  9H.  X.  §§  5,  6. 

her  climate  and  the  temper  of  her  people,  yet  there  are  a  few- 
There  should  peasant  proprietors  in  England  who  are  perfectly 
be  no  artificial  happy  in  this  condition :    and  there  are  a  few 

hindrances    to        ^  -^ "' 

peasants'  pro-  others  who  would  buy  small  plots  of  land  and 
perties.  would  live  happily  on  them,  if  they  could  get  just 

what  they  wanted  where  they  wanted  it.  Their  temper  is 
such  that  they  do  not  mind  working  hard  and  living  sparely, 
provided  they  need  call  no  one  master ;  they  love  quiet  and 
dislike  excitement ;  and  they  have  a  great  capacity  for  growing 
fond  of  land\  Reasonable  opportunity  should  be  given  to 
such  people  to  invest  their  savings  in  small  plots  of  land,  on 
which  they  may  raise  suitable  crops  with  their  own  hands; 
and  at  the  very  least  the  present  grievous  legal  charges  on  the 
transfer  of  small  plots  should  be  diminished. 

Co-operation  might  seem  likely  to  flourish  in  agriculture 
Co-operation  and  to  combine  the  economies  of  production  on  a 
in  agriculture,  i^^^q  scale  with  many  of  the  joys  and  the  social 
gains  of  small  properties.  But  it  requires  habits  of  mutual 
trust  and  confidence ;  and  unfortunately  the  bravest  and  the 
boldest,  and  therefore  the  most  trustful,  of  the  countrymen 
have  always  moved  to  the  towns,  and  agriculturists  are  a 
suspicious  race.  Co-operative  movements  in  agriculture  there- 
fore must  needs  be  very  cautious,  until  the  way  has  been  well 
prepared  for  them  by  the  less  ambitious  but  safer  system  of 
profit-sharing. 

As  co-operation  might  combine  more  of  the  advantages 
of  all  systems  of  tenure,  so  the  cottier  system  of  Ireland  often 
combined  the  disadvantages  of  all;  but  its  worst  evils  and 
their  causes  are  rapidly  disappearing,  and  the  economic  ele- 
ments of  the  problem  are  just  now  overshadowed  by  the 
political.     We  must  therefore  pass  it  by^ 

1  The  number  of  holdings  under  50  acres  in  Great  Britain  in  1885  was  over 
three  hundred  thousand. 

2  The  English  system  of  tenure  is  competitive  in  its  essence,  but  agri- 
culture offers  great  obstacles  to  the  full  and  free  action  of  competition.    These 


DEMAND  AND  SUPPLY   IN   RELATION  TO   LAND.      345 

§  6.     Finally  a  word  may  be  said  as  to  private  and  public 

interests  with  regard  to  open  spaces  in  towns. 

Wakefield   and   the  American  economists  have  ^onflict     be- 
tween  public 
taught  us  how  a  sparsely  inhabited  new  district  and     private 

is  enriched  by  the  advent  of  every  new  settler,  the  matter  of 
The   converse   truth   is   that   a   closely   peopled  building     on 

,         .        .      .  •  1      1  111  open  spaces. 

district  IS  impoverished  by  everyone  who  adds  a 
new  building  or  raises  an  old  one  higher.  The  want  of  air 
and  light,  of  peaceful  repose  out-of-doors  for  all  ages  and  of 
healthy  play  for  children,  exhausts  the  energies  of  the  best 
blood  of  England  which  is  constantly  flowing  towards  our 
large  towns.  By  allowing  vacant  spaces  to  be  built  on  reck- 
lessly we  are  committing  a  great  blunder  from  a  business 
point  of  view,  since  for  the  sake  of  a  little  material  wealth 
we  are  wasting  those  energies  which  are  the  factors  of  pro- 
duction of  all  wealth;  and  we  are  sacrificing  those  ends 
towards  which  material  wealth  is  only  a  means.  It  is  a 
difiicult  question  to  decide  how  far  the  expense  of  clearing 
open  spaces  in  land  already  built  on  should  fall  on  the 
neighbouring  owners ;  but  it  seems  right  that  for  the  future 
every  new  building  erected,  save  in  the  open  country,  should 
be  required  to  contribute  in  money  or  in  kind  towards  the 
expenses  of  open  places  in  its  neighbourhood. 

arise  partly  from  the  difficulty  of  deciding  what  are  normal  prices  and  harvests; 
partly  from  local  variations  in  the  standard  of  normal  farming  skiU  and  enter- 
prise. On  this  and  some  allied  questions  relating  to  compensation  for 
improvements,  see  Principles  VI.  x.  10. 


CHAPTER  XI. 

GENERAL   VIEW   OF   DISTRIBUTION. 

§  1.  Before  drawing  together  the  argument  of  this  Book, 
it  will  be  well  to  recall  the  chief  results  of  the  general  theory 
of  equilibrium  of  demand  and  supply. 

In  Book  V.  we  saw  that  most  of  the  apparent  differences 

between  the  modes  of  action  of  the  causes  that 

termine    price  determine  value   depend   on   differences   in   the 

in  markets  too  periods  of  time  required  for  those  forces  to  work 

short  to  permit   ^  ^ 

the  direct  in-  out  their  normal  effects  :  they  are  not  really 
of  production^^  differences  in  kind,  but  only  differences  in  degree, 
passing  into  one  another  by  continuous  gradations. 
Thus  the  equilibrium  price  in  a  local  fish-market  is  that  at 
which  there  will  be  a  demand  for  last  night's  catch ;  it  is  not 
appreciably  affected  by  future  supplies  either  from  to-morrow's 
catch,  or  from  other  fishing  ports.  In  a  market  for  a  durable 
commodity,  such  as  cotton  or  wheat,  market  prices  are  much 
influenced  by  estimates  of  "  futures,"  that  is  of  stocks  expected 
shortly  to  arrive,  and  even  crops  not  yet  reaped.  But  buyers 
cannot  afford  to  wait  for  crops  not  yet  sown;  and  therefore 
cost  of  production  has  no  direct  influence  on  the  day's  market. 
But  it  has  a  direct  influence  at  the  next  stage,  when  we 
That  influence  ^^^®  *^  *^®  market  price  of  such  a  thing  as  cloth 
beginning  to  of  a  particular  pattern.  For  if  its  price  rises 
opera  e.  qyqh  a  little  relatively  to  other  kinds  made  of 

similar  material  and  in  the  same  factories,  its  supply  will  be 
much  increased  quickly;  and  therefore  its  price  is  directly 
governed  by  current  (money)   cost  of   production.     We  say 


GENERAL   VIEW   OF   DISTRIBUTION.  347 

"current"  cost  because  estimates  of  it  take  for  granted  the 
current  price  of  raw  material,  the  current  wages  of  textile 
operatives,  and  so  on. 

Again  these  weekly  oscillations  of  price  in  a  cloth-market 
about  its  short-period  position  of  equilibrium  its  scope  ex- 
resemble  the  oscillations  of  this  equilibrium  tending  further 
position  itself  about  a  true  (or  long-period)  normal  level. 
This  true  normal  level  must  be  estimated  with  regard  to 
periods  long  enough  to  allow  a  change  in  the  habits  of  dress 
of  the  people  to  work  out  its  chief  effects  in  causing  Australian 
sheep  farmers  to  extend  their  sheep  runs,  in  causing  English 
capitalists  to  build  new  cloth  factories,  and  new  factories  for 
making  cloth-making  machinery,  and  in  causing  labour  of  all 
grades,  from  that  of  the  highest  business  management  down 
to  the  lowest  class  required  in  the  production  of  cloth,  to  drift 
towards  that  trade,  and  to  bring  up  their  children  to  it. 

And  these  oscillations  again  resemble  those  secular  oscil- 
lations of  wages  about  the  customary  standard      and  still 
of  living,  which  there  is  reason  for  thinking  have      further, 
frequently  occurred  in  the  histories  of  stationary  civilizations. 

To  look  at  the  same  set  of   facts  from  another  point  of 
view  : — neither  the  price  at  which  a  thing  can  be  y^^^^j^gj. 
sold,  nor  the  income  which  can  be  earned  by  grouping  of 
using   it  in  the  production  of   other  things,  is        ^^"^^ 
directly  affected  by  its  own  cost  of  production.     For,  as  Mill 
said,  "  Cost  of  production  could  have  no  effect  on  value,  if  it 
could  have  none  on  supply." 

Thus  the  price,  which  a  sack  of  wheat  already  in  Liver- 
pool fetches  there,  is  not  determined  directly  by  its  cost  of 
production,  but  tends  to  that  equilibrium  level  at  which  the 
amount  demanded  will  be  equal  to  the  sum  of  existing  stocks 
together  with  those  additional  stocks  which  at  that  price 
will  be  brought  from  elsewhere.  The  actual  price  of  a 
building  is  determined,  not  by  its  cost  of  production,  but  by 
the  relations  between  demand  on  the  one  side,  and  on  the 


348  BOOK  VI.   CH.  XI.  §§  1,  2. 

other  the  existing  stock  of  such  buildings,  together  with  the 
new  supplies  that  current  expectations  of  price  are  likely  to 
bring  shortly  into  existence.  The  demand-price  for  it  is  the 
capitalized  value  of  all  the  net  incomes  that  are  expected  to 
accrue  from  its  possession. 

The  incomes  derived  from  appliances  for  production  of 
any  kind,  are  watched  by  those  who  are  doubting  whether  to 
provide  similar  appliances ;  and  they  enter  among  the  causes 
extending  over  a  long  period  of  time,  by  which  the  true 
normal  value  of  the  commodity  made  by  these  appliances 
is  determined :  for  a  rise  or  fall  of  these  incomes  above  or 
below  the  rewards  that  can  be  got  by  investing  capital  and 
labour  in  other  ways,  increases  or  diminishes  the  supply  of 
these  appliances  and  therefore  of  the  goods  produced  by  them. 
For  the  purposes  of  the  theory  of  normal  value  these  incomes 
are  to  be  regarded  as  Profits,  entering  into  the  money  cost 
of  production  of  the  commodities  in  question. 

But  so  far  as  current  variations  in  the  supply — and  there- 
fore the  price — of  the  commodity  are  concerned,  variations  in 
the  income  derived  from  these  appliances  exercise  no  appre- 
ciable effect :  and  on  the  other  hand  variations  in  the  price 
of  the  commodity  do  determine  the  Surplus,  which  the  Pro- 
ducers in  possession  of  these  appliances  receive  over  and 
above  the  fresh  outlay  of  capital  and  effort  required  for 
producing  the  commodities  by  the  aid  of  these  appliances. 
And  even  when  we  are  considering  variations  in  the  price  of 
a  commodity  that  range  over  too  long  a  time  to  be  called 
"  current  variations  "  we  find  that  the  shorter  that  period  is, 
and  the  slower  the  process  of  production  of  the  requisite 
appliances,  the  less  influence  will  variations  in  that  income 
exert  on  the  supply  of  that  commodity,  and  therefore  on  its 
price :  and  the  more  closely  will  the  income  approach  to  the 
nature  of  a  Rent  which  is  determined  by  that  price,  and  which 
does  not  take  a  direct  part  in  determining  it.  And  we  have 
regarded  them  therefore  in  this  connection  as  a  Quasi-rent. 


GENEHAL   VIEW  OF  DISTRIBUTION.  349 

§  2.  In  this  summary  of  Book  v.  we  have  traced  a  con- 
tinuous thread  runninsj  through  and  connectinoj  .     , .       ,     , 

r>  o  o    Looking    back 

the  applications  of  the  general  theory  of  equi-  over  the  last 
librium  of  demand  and  supply  to  different  periods  ^f  ^hav^e'^^to 
of   time:    from  those  so  short  that  cost  of  pro-  ^^^^^  ^  thread 

T         .  IT  .  T  .     rt  of     continuity 

duction  could  exercise  no  direct  influence  on  transverse  to 
value,  to  those  so  long  that  the  supply  of  the  that  in  Book  v. 
appliances  of  production  could  be  fairly  well  adjusted  to  the 
indirect  demand  for  them  which  is  "  derived  "  from  the  direct 
demand  for  the  commodities  which  they  produce. 

And  now  looking  back  over  the  last  eight  chapters  of 
the  present  Book  we  have  to  trace  another  thread  of  con- 
tinuity ;  but  it  lies  transversely  to  the  thread  connecting 
different  periods  of  time,  and  rests  upon  it.  The  thread  which 
we  are  now  to  pursue,  connects  the  various  agents  and  ap- 
pliances for  production  material  and  human,  and  establishes  a 
fundamental  unity  between  them,  in  spite  of  their  important 
differences  of  outward  feature. 

There  is  a  general  correspondence  between  the  causes 
that  govern  the  supply  prices  of  Material  and  of  Personal 
capital :  the  motives  which  induce  a  man  to  accumulate 
Personal  capital  in  his  son's  education,  and  the  estimates  of 
the  future  by  which  his  action  is  directed,  are  similar  to  those 
which  control  his  accumulation  of  Material  capital  /or  his 
son.  There  is  a  continuous  transition  from  the  father  who 
works  and  waits  in  order  that  he  may  bequeath  to  his  son  a 
rich  and  firmly-established  manufacturing  or 
trading  business,  to  one  who  works  and  waits  in  the  income 
order  to  support  his  son  while  he  is  slowly  ac-  tefiai^u>^ tlmt 
quiring  a  thorough  medical  education,  and  ulti-  yielded  by  per- 
mately  to  buy  for  him  a  lucrative  practice ;  and  ^°"^  ^^^^ 
again  there  is  a  similar  transition  from  him  to  the  father 
who  works  and  waits  in  order  that  his  son  may  stay 
long  at  school,  and  afterwards  work  for  some  time  almost 
without  pay  while  learning  a  skilled  trade,  instead  of  being 


850  BOOK  VI.  CH.  XL  §§  2,  3. 

forced  to  support  himself  early  in  an  unskilled  occupa- 
tion. 

It  is  indeed  true  that  the  only  persons,  who,  as  society  is 
now  constituted,  are  very  likely  to  invest  much  in  developing 
the  Personal  capital  of  a  youth's  abilities,  are  his  parents: 
and  many  first-rate  abilities  go  for  ever  uncultivated  because 
no  one  has  had  both  adequate  means  and  an  adequate  motive 
for  developing  them.  This  fact  is  very  important  practically, 
for  its  effects  are  cumulative.  But  it  does  not  give  rise  to  a 
fundamental  difference  between  material  and  human  agents  of 
production :  for  it  is  analogous  to  the  fact  that  much  good 
land  is  poorly  cultivated  because  those  who  would  cultivate 
it  well  have  not  access  to  it. 

Again,  since  human  beings  grow  up  slowly  and  are  slowly 
worn  out,  and  parents  in  choosing  an  occupation  for  their 
children  must  as  a  rule  look  forward  a  whole  generation, 
changes  in  demand  take  a  longer  time  to  work  out  their  full 
effects  on  supply  in  the  case  of  human  agents  than  of  most 
kinds  of  material  appliances  for  production;  and  a  specially 
"long"  period  is  required  in  the  case  of  labour  to  give  full 
play  to  the  economic  forces  which  tend  to  bring  about  a 
normal  adjustment  between  demand  and  supply  \ 

§  3.  The  marginal  efficiency  of  human  agents  of  produc- 
_  tion  supported  by  Wage-capital  on  the  one  hand. 

Substitution,  and  that  of  material  agents  on  the  other,  are 
ment  of  "'The  Weighed  against  one  another  and  compared  with 
services     and  their  marginal  costs :  and  each  tends  to  be  applied 

incomes  of  dif-  °,      .  ^    .  ,  ,  ,  . 

ferent  agents  as  tar  as  it  IS  more  efficient  than  the  other  m 
of  production,  proportion  to  its  cost.  A  chief  function  of 
business  undertakers  is  to  facilitate  the  free  action  of  this 
great  Law  of  Substitution.  Generally  to  the  public  benefit, 
but  sometimes  in  opposition  to  it,  they  are  constantly  com- 
paring the  services  of  machinery,  and  of  labour,  and  again  of 
unskilled  and  skilled  labour,  and  of  extra  foremen  and 
1  Comp.  Book  IV.  Ch.  v.  vi.  vii.  and  xii, ;  and  Book  VI.  Ch.  iv.  v.  and  vii. 


GENERAL   VIEW  OF  DISTRIBUTION.  351 

managers;  they  are  constantly  devising  and  experimenting 
with  new  arrangements  which  involve  the  use  of  different 
factors  of  production,  and  selecting  those  most  profitable  to 
themselves'. 

The  efficiency  as  compared  with  the  cost  of  almost  every 
class  of  labour,  is  thus  continually  being  weighed  in  the 
balance  in  one  or  more  branches  of  production  against  some 
other  classes  of  labour :  and  each  of  these  in  its  turn  against 
others.  This  competition  is  primarily  "  vertical : "  it  is  a 
struggle  for  the  field  of  employment  between  groups  of  labour 
belonging  to  different  grades,  but  engaged  in  the  same  branch 
of  production,  and  inclosed,  as  it  were,  between  the  same 
vertical  walls.  But  meanwhile  "horizontal"  competition  is 
always  at  work,  and  by  simpler  methods  :  for,  firstly,  there  is 
great  freedom  of  movement  of  adults  from  one  business  to 
another  within  each  trade ;  and  secondly,  parents  can  generally 
introduce  their  children  into  almost  any  other  trade  in 
their  neighbourhood  of  the  same  grade  as  their  own.  By 
means  of  this  combined  vertical  and  horizontal  competition 
there  is  an  effective  and  closely  adjusted  balance  of  payments 
to  services  as  between  labour  in  different  grades ;  in  spite  of 
the  fact  that  the  labour  in  any  one  grade  is  mostly  recruited 
even  now  from  the  children  of  those  in  the  same  grade*. 

The  working  of  the  Law  of  Substitution  is  thus  chiefly 
indirect.  When  two  tanks  containing  fluid  are  indirect 
joined  by  a  pipe,  the  fluid,  which  is  near  the  pipe  competition, 
in  the  tank  with  the  higher  level,  will  flow  into  the  other, 
even  though*  it  be  rather  viscous ;  and  thus  the  general  levels 
of  the  tanks  will  tend  to  be  brought  together,  though  no  fluid 
may  flow  from  the  further  end  of  the  one  to  the  further  end 
of  the  other ;  and  if  several  tanks  are  connected  by  pipes,  the 
fluid  in  all  will  tend  to  the  same  level,  though  some  tanks 
have  no  direct  connection  with  others.     And  similarly  the 

1  Comp.  Book  V.  Ch.  m.  §  3,  Book  vi.  Ch.  i.  §  2,  and  Ch.  vii.  §  2. 

2  Comp.  Book  rV.  Ch.  vi.  §  7,  and  Book  vi.  Ch.  v.  §  2. 


852  BOOK  VI.  CH.  XI.  §§  3 — 5. 

Law  of  Substitution  is  constantly  tending  by  indirect  routes 
to  apportion  earnings  to  efficiency  between  trades,  and  even 
between  grades,  which  are  not  directly  in  contact  with  one 
another,  and  which  appear  at  first  sight  to  have  no  way  of 
competing  with  one  another. 

§  4.  There  is  no  breach  of  continuity  as  we  ascend  from 
The  earnings  ^^®  Unskilled  labourer  to  the  skilled,  thence  to 
of     business    the  foreman,  to  the  head  of  a  department,  to  the 

undertakers.  ,  p        i  i        •  •  ->  .-, 

general  manager  of  a  large  business  paid  partly 
by  a  share  of  the  profits,  to  the  junior  partner,  and  lastly  to 
the  head  partner  of  a  large  private  business :  and  in  a  joint- 
stock  company  there  is  even  somewhat  of  an  anti-climax  when 
we  pass  from  the  directors  to  the  ordinary  shareholders,  who 
undertake  the  chief  ultimate  risks  of  the  business. 

On  the  whole  the  work  of  business  management  is  done 
Their  work  cheaply — not  indeed  as  cheaply  as  it  may  be  in 
^^L  ^\fJl^^  the  future  when  men's  collective  instincts,  their 

more    cheaply  ' 

hereafter,  but  sense  of  duty  and  their  public  spirit  are  stronger, 
society  more  ^^^  when  society  cxerts  itself  more  to  develop 
than  it  costs.  ^Jjq  latent  faculties  of  those  who  are  born  in  a 
humble  station  of  life,  to  diminish  the  secrecy  of  business,  and 
in  other  ways  to  hold  in  check  the  more  wasteful  forms  of 
speculation  and  of  competition :  but  yet  so  cheaply  that  it 
contributes  to  production  more  than  the  equivalent  of  its  pay. 
For  the  business  undertaker,  like  the  skilled  artisan,  renders 
services  which  society  needs,  and  which  it  would  probably 
have  to  get  done  at  a  higher  cost  if  he  were  not  there  to  do 
them. 

The  ablest  business  men  are  generally  those  who  get  the 
highest  profits,  and  at  the  same  time  do  their  work  most 
cheaply ;  and  it  would  be  as  wasteful  if  society  were  to  give 
their  work  to  inferior  people  who  would  undertake  to  do  it 
more  cheaply,  as  it  would  be  to  give  a  valuable  diamond  to 
be  cut  by  a  low  waged  but  unskilled  cutter.  And,  just  as 
the  wages  of   skilled  cutters  enter  into  the  normal  supply 


GENERAL   VIEW  OF  DISTRIBUTION.  353 

price  of  cut  diamonds,  so  the  Earnings  of  Management  of 
able  business  men  enter  into  the  normal  supply  price  of  the 
goods  which  they  provide'. 

The  similarity  between  the  causes  that  determine  the 
normal  rewards  of  ordinary  ability  on  the  one  contrasts  be- 
hand,  and  of  business  power  in  command  of  tween  fluctua- 
capital  on  the  other,  does  not  extend  to  the  profits  and 
fluctuations  of  their  current  earnings.  For  the  wages, 
undertaker  stands  as  a  buffer  between  the  buyer  of  goods  and 
all  the  various  classes  of  labour  by  which  they  are  made. 
He  receives  the  whole  price  of  the  goods  and  pays  the  whole 
price  of  the  labour.  The  fluctuations  of  his  profits  go  with 
fluctuations  of  the  prices  of  the  things  he  sells,  and  are  more 
extensive :  while  those  of  the  wages  of  his  employes  come 
later  and  are  less  extensive.  The  income  of  his  capital  and 
ability  at  any  particular  time  is  sometimes  large,  but  some- 
times also  a  negative  quantity  :  whereas  that  of  the  ability  of 
his  employes  is  never  very  large,  and  is  never  a  negative 
quantity.  The  wage-receiver  is  likely  to  suffer  much  when 
out  of  work ;  but  that  is  because  he  has  no  reserve,  not  because 
he  is  a  wage-receiver^. 

§  5.     Finally  we  must  take  account  of  the  fact  that  the 
various  agents  of  production  stand  in  a  double  xhe  various 
relation  to  one  another^.    On  the  one  hand  they  agents  of  pro- 

y     auction  are  the 

are  often  rivals  for  employment ;  any  one  that  is  sole  source  of 
more  efficient  than  another  in  proportion  to  its  f^onJan-"^ 
cost  tending  to  be  substituted  for  it,  and  thus  other, 
limiting  the  demand  price  for  the  other.  And  on  the  other 
hand  they  all  constitute  the  field  of  employment  for  each 
other :  there  is  no  field  of  employment  for  any  one,  except  in 
so  far  as  it  is  provided  by  the  others  :  the  National  Dividend 

*  But  it  is  still  true  that  the  rent  derived  from  all  rare  natural  abilities  is  a 
rent  from  the  point  of  view  of  the  individual,  though  not  for  the  purposes  of 
the  theory  of  normal  value.     See  Book  VI.  Ch.  viii.  §  6. 

2  Comp.  Book  VI.  Ch.  iv.  §  6  and  Ch.  viii.  §  4. 

3  Comp.  Book  VI.  Ch.  ii.  generally,  and  especially  §§  5,  7. 

M.  23 


354  BOOK  VI.  CH.  XI.  §§  5,  6. 

which  is  the  joint  product  of  all,  and  which  increases  with  the 
supply  of  each  of  them,  is  also  the  sole  source  of  demand  for 
each  of  them.  This  fact  is  the  most  prominent  feature  in  a 
general  view  of  Distribution,  as  distinguished  from  applications 
of  the  Theory  of  Value  to  the  prices  of  particular  commodities 
or  the  wages  of  particular  trades. 

Thus  skilled  labour  and  unskilled  labour  are  often  com- 
petitors for  employment;  but  an  increase  in  the  supply  or 
efficiency  of  the  one  will  so  increase  the  National  Dividend, 
and  at  the  same  time  so  cheapen  the  rate  at  which  it  per- 
forms its  services  that  the  other  will  earn  a  higher  reward 
for  its  services,  and  so  also  will  capital  and  business  power. 

Or,  again,  if  the  supply  or  efficiency  of  business  ability 
increases,  there  is  likely  to  be  some  displacement  of  manual 
labour  by  new  contrivances  for  economizing  effi)rt,  and  by 
new  inventions  of  various  kinds.  But  this  shrinking  in  some 
directions  of  the  field  of  employment  for  manual  labour  will 
be  more  than  compensated  in  others.  For  the  increased 
supply  of  business  ability  will  increase  the  National  Dividend, 
and  will  also  increase  the  competition  of  business  men  for 
the  loan  of  material  capital  and  the  hire  of  manual  labour; 
and  will  thus  lessen  the  share  of  that  Dividend,  which  a 
business  man  of  any  given  capacity  and  energy  is  able  to  secure. 

In  like  manner  an  increase  of  material  capital  causes  it  to 
push  its  way  into  new  uses :   and  though  in  so 

How     an     in-    ^    .  .  •'  ^  ® 

crease  of  capi-  doing  it  may  occasionally  diminish  the  field  of 
the  fieid^for^the  e^aployment  for  manual  labour  in  a  few  trades, 
employment  of  yet  on  the  whole  it  will  very  much  increase  the 
demand  for  manual  labour  and  all  other  agents 
of  production.  For  it  will  much  increase  the  National  Divi- 
dend, which  is  the  common  source  of  the  demand  for  all ;  and 
since  by  its  increased  competition  for  employment  it  will  have 
forced  down  the  rate  of  interest,  therefore  the  joint  product 
of  a  dose  of  capital  and  labour  will  now  be  divided  more  in 
favour  of  labour  than  before. 


GENERAL  VIEW   OF  DISTRIBUTION.  355 

This  new  demand  for  labour  will  partly  take  the  form  of 
the  opening-out  of  new  undertakings  which  hitherto  could 
not  have  paid  their  way. .  It  will,  for  instance,  lead  to  the 
making  of  railways  and  waterworks  in  districts  which  are 
not  very  rich,  and  which  would  have  continued  to  drag  their 
goods  along  rough  roads,  and  draw  up  their  water  from  wells, 
if  people  had  not  been  able  and  willing  to  support  labour 
while  making  railway  embankments  and  water  conduits,  and 
to  wait  for  the  fruits  of  their  investment  long  and  for  a  rela- 
tively low  reward'. 

§  6.     Next  we  must  consider  in  relation  to  one  another  the 
interests  of  different  industrial  classes  engaged  Relations  be- 
in  the  same  trade.     The  net  income  at  any  par-  *ween  the 

'' ^  ^  interests  of 

ticular  time  yielded  by  a  successful  business,  different 
looked  at  from  the  point  of  view  of  the  under-  workers°in 
taker  himself,  is  the  aggregate  of  the  net  incomes  the  same  trade, 
yielded,  firstly,  by  his  own  ability,  secondly,  by  his  plant  and 
other  material  capital,  and  thirdly,  by  his  business  organization 
and  connection.  But  really  it  is  more  than  the  sum  of  these. 
For  his  efficiency  depends  partly  on  his  being  in  that  particular 
business ;  and  if  he  were  to  sell  it  at  a  fair  price,  and  then 
engage  himself  in  another  business,  his  income  would  probably 
be  much  diminished. 

1  In  discussing  the  influence  which  a  change  in  the  supply  of  work  of  any 
one  industrial  group  exerts  on  the  field  of  employment  for  other  kinds  of 
lahour,  there  was  no  need  to  raise  the  question  whether  the  increase  of  work 
came  from  an  increase  in  the  numbers  or  in  the  efficiency  of  those  in  the 
group :  for  that  question  is  of  no  direct  concern  to  the  others.  In  either  case 
there  is  the  same  addition  to  the  National  Dividend :  in  either  case  com- 
petition will  compel  them  to  force  themselves  to  the  same  extent  into  uses  in 
which  their  marginal  utility  is  lower ;  and  will  thus  lessen  to  the  same  extent 
the  share  of  the  joint  product  which  they  are  able  to  claim  in  return  for  a 
given  amount  of  work  of  a  given  kind. 

But  the  question  is  of  vital  importance  to  the  members  of  that  group. 
For,  if  the  change  is  an  increase  of  one-tenth  in  their  average  efficiency,  then 
each  ten  of  them  will  have  as  high  an  aggregate  income  as  each  eleven  of 
them  would  have  if  their  numbers  had  increased  by  one-tenth,  their  efficiency 
remaining  unchanged. 

23—2 


356  BOOK  VL*  CH.  XI.  §§  6,  7. 

The  point  of  view  of  the  undertaker  however  does  not 

include  the  whole  net  income  (or  Quasi-rent)  of 

income  °of    a  ^he  business :    for  there  is   another  part  which 

business  often  attaches  to  his  employes.     Indeed,  in  some  cases 

attaches  to  the  ^     ''  t         i  i     n      . 

employes,  and  and  for  some  purposes,  nearly  the  whole  income 
if^'hey^s^oJght  ^^  ^  business  may  be  regarded  as  divisible  among 
other  employ-  ^ho  different  persons  in  the  business  by  bargain- 
ing, supplemented  by  custom  and  by  notions  of 
fairness.  Thus  the  head  clerk  in  a  business  often  has  an  ac- 
quaintance with  men  and  things,  the  use  of  which  he  could 
sell  at  a  high  price  to  rival  firms  :  but  on  the  other  hand  it  may 
be  of  a  kind  to  be  of  no  value  save  to  the  business  in  which 
he  already  is ;  and  then  his  departure  would  perhaps  injure 
it  by  several  times  the  value  of  his  salary,  while  probably 
he  could  not  get  half  that  salary  elsewhere.  And  when  a 
firm  has  a  speciality  of  its  own,  many  of  its  ordinary  workmen 
would  lose  a  great  part  of  their  wages  by  going  away,  and  at 
the  same  time  injure  the  firm  seriously.  The  chief  clerk 
may  be  taken  into  partnership,  and  the  whole  of  the  em- 
ployes may  be  paid  partly  by  a  share  in  the  profits  of  the 
concern ;  but  whether  this  is  done  or  not,  their  earnings  are 
determined,  not  so  much  by  competition  and  the  direct  action 
of  the  Law  of  Substitution,  as  by  a  bargain  between  them 
and  their  employers,  the  terms  of  which  are  theoretically 
arbitrary.  In  practice  however  they  will  probably  be  govern- 
ed by  a  desire  to  "do  what  is  right,"  that  is,  to  agree  on 
payments  that  represent  the  normal  earnings  of  such  ability, 
industry  and  special  training  as  the  employes  severally  pos- 
sess, with  something  added  if  the  fortunes  of  the  firm  are 
good,  and  something  subtracted  if  they  are  bad. 

Thus  there  is  de  facto  some  sort  of  profit-and-loss  sharing 

Profit-sharin      between  almost  every  business  and  its  employes  ; 

and   perhaps   this   is   in   its   very  highest  form 

when,   without  being  embodied  in  a  definite   contract,    the 

solidarity  of  interests  between  those  who  work  together  in  the 


GENERAL   VIEW   OF   DISTRIBUTION.  357 

same  business  is  recognized  with  cordial  generosity  as  the 
result  of  true  brotherly  feeling.  But  such  cases  are  not  very 
common ;  and  as  a  rule  the  relations  between  employers  and 
employed  are  raised  to  a  higher  plane  both  economically  and 
morally  by  the  adoption  of  the  system  of  Profit-sharing; 
especially  when  it  is  regarded  as  but  a  step  towards  the  still 
higher  but  much  more  difficult  level  of  true  Co-operation. 

§  7.  If  the  employers  in  any  trade  act  together  and  so  do 
the   employed,   the   solution  of   the  problem  of  _     , 

J^     •'       '  ^  Trades  unions 

wages  becomes  indeterminate.     The  trade  as  a  and  combina- 

11  1  .11  ••  1/         tions    among 

whole  may  be  regarded  as  receiving  a  surplus  (or  employers 
Quasi-rent)  consisting  of  the  excess  of  the  aggre-  *f"^  *° ,  '"^^^ 

^  ...  .      the  problem  of 

gate  price  which  it  can  get  for  such  wares  as  it  wages  indeter- 
produces,  over  what  it  has  to  pay  to  other  trades  ™^"^  ^' 
for  the  raw  materials,  &c.  which  it  buys  ;  and  there  is  nothing 
but  bargaining  to  decide  the  exact  shares  in  which  this  should 
go  to  employers  and  employed.  No  lowering  of  wages  will  be 
permanently  in  the  interest  of  employers,  which  is  unnecessary 
and  drives  many  skilled  workers  to  other  markets,  or  even  to 
other  industries  in  which  they  abandon  the  special  income 
derived  from  their  peculiar  skill;  and  wages  must  be  high 
enough  in  an  average  year  to  attract  young  people  to  the 
trade.  This  sets  lower  limits  to  wages,  and  upper  limits  are 
set  by  corresponding  necessities  as  to  the  supply  of  capital 
and  business  power.  But  what  point  between  these  limits 
should  be  taken  at  any  time  can  be  decided  only  by  higgling 
and  bargaining;  which  are  however  likely  to  be  tempered 
somewhat  by  ethico-prudential  considerations,  especially  if 
there  be  a  good  Court  of  Conciliation  in  the  trade. 

The  case  is  in  practice  even  more  complex,  because  each 
group  of  employes  is  likely  to  have  its  own  union,  and  to 
fight  for  its  own  hand.  The  employers  act  as  buffers :  but  a 
strike  for  higher  wages  on  the  part  of  one  group  may,  in 
effect,  strike  the  wages  of  some  other  group  almost  as  hard 
as  the  employers'  profits. 


CHAPTER  XII. 

THE  INFLUENCE  OF  PROGRESS  ON  VALUE. 

§  1.     The  field  of  employment  which  any  place  ojffers  for 
labour  and  capital  depends  firstly  on  its  natural 

The  field  of  Ji  ^l.  *    ^         • 

employment      resources ;    secondly,    on   the  power  ot   turning 
[°bour  **^^  ^"^  them  to  good  account,  derived  from  its  progress 

of  knowledge  and  of  social  and  industrial  organi- 
zation ;  and  thirdly,  on  the  access  that  it  has  to  markets  in 
which  it  can  sell  those  things  of  which  it  has  a  superfluity. 
The  importance  of  this  last  condition  is  often  underrated;  but 
it  stands  out  prominently  when  we  look  at  the  history  of  new 
countries. 

It  is  commonly  said  that  wherever  there  is  abundance  of 

good  land  to  be  had  free  of  rent,  and  the  climate 
rich  ?n  new^^^  ^^  ^^*  Unhealthy,  the  real  earnings  of  labour  and 
countries  the  interest  on  capital  must  both  be  hi^jh.     But 

which  have  no  .  .  ^ 

good  access  to  this  is  Only  partially  true.  The  early  colonists  of 
theOldWoridf  America  lived  very  hardly.  Nature  gave  them 
wood  and  meat  almost  free :  but  they  had  very 
few  of  the  comforts  and  luxuries  of  life.  And  even  now  there 
are,  especially  in  South  America  and  Africa,  many  places  to 
which  Nature  has  been  abundantly  generous,  which  are  never- 
theless shunned  by  labour  and  capital,  because  they  have  no 
ready  communications  with  the  rest  of  the  world.  On  the 
other  hand  high  rewards  may  be  ojBFered  to  capital  and  labour 
by  a  mining  district  in  the  midst  of  an  alkaline  desert,  when 
once  communications  have  been  opened  up  with  the  outer 
world,  or  again  by  a  trading  centre  on  a  barren  sea-coast; 
though,  if  limited  to  their  own  resources,  they  could  support 


THE   INFLUENCE   OF   PllOGRESS   ON   VALUE.  359 

but  a  scanty  population,  and  that  in  abject  poverty.  And  the 
splendid  markets  which  the  Old  "World  has  offered  to  the 
products  of  the  New,  since  the  growth  of  steam-communi- 
cation, have  rendered  North  America  and  Australia  the 
richest  large  fields  for  the  employment  of  capital  and  labour 
that  there  have  ever  been. 

But  after  all  the  chief  cause  of  the  modern  prosperity  of 
new  countries  lies  in  the  markets  that  the  old 

^  1      m  P  111  ^^^    countries 

world  oners,  not  for  goods  delivered  on  the  spot,  offer  a  market 
but  for  promises  to  deliver  goods  at  a  distant  o°thefuturefn- 
date.  A  handful  of  colonists  having  assumed  comes  of  a  new 
rights  of  perpetual  property  in  vast  tracts  of  '^°""  ^^' 
rich  land,  are  anxious  to  reap  in  their  own  generation  its 
future  fruits ;  and  as  they  cannot  do  this  directly,  they  do  it 
indirectly,  by  selling  in  return  for  the  ready  goods  of  the  old 
world  promises  to  pay  much  larger  quantities  of  the  goods 
that  their  own  soil  will  produce  in  a  future 
generation.  In  one  form  or  another  they  mort-  sequent  influx 
ffasje  their  new  property  to   the   old   world   at  °f  capital  into 

1-1  c    .  T^      T  1  the  latter 

a  very  high  rate  of  interest.  Englishmen  and 
others,  who  have  accumulated  the  means  of  present  enjoy- 
ment, hasten  to  barter  them  for  larger  promises  in  the  future 
than  they  can  get  at  home  :  a  vast  stream  of  capital  flows 
to  the  new  country,  and  its  arrival  there  raises  the  rate  of 
wages  very  high.  The  new  capital  filters  but  slowly  towards 
the  outlying  districts :  it  is  so  scarce  there,  and  so  many 
persons  are  eager  to  have  it,  that  it  has  often  commanded  for  a 
long  time  two  per  cent,  a  month,  from  which  it  has  fallen  by 
gradual  stages  down  to  six,  or  perhaps  even  five  per  cent.,  a 
year. 

For  the  settlers  being  full  of  enterprise,  and  seeing  their 
way  to  acquiring  private  title-deeds  to  property      .    ^  nominal 
that  will  shortly  be  of  great  value,  are  eager  to  wages  very 
become  independent  undertakers,  and  if  possible     *^ 
employers  of  others ;  so  wage-earners  have  to  be  attracted  by 


360  BOOK  VI.   CH.  XII.   §  1. 

high  wages,  which  are  paid  in  a  great  measure  out  of  the  com- 
modities borrowed  from  the  old  world  on  mortgages,  or  in 
other  ways.  It  is,  however,  difficult  to  estimate  exactly  the  real 
rate  of  wages  in  outlying  parts  of  new  countries.  The  workers 
are  picked  men  with  a  natural  bias  towards  adventure ;  hardy, 
resolute,  and  enterprising ;  men  in  the  prime  of  life,  who  do 
not  know  what  illness  is ;  and  the  strain  of  one  kind  and 
another  which  they  go  through,  is  more  than  the  average 
English,  and  much  more  than  the  average  European  labourer 
could  sustain.  There  are  no  poor  among  them,  because  there 
are  none  who  are  weak :  if  anyone  becomes  ailing,  he  is  forced 
to  retire  to  some  more  thickly-peopled  place  where  there  is 
less  to  be  earned,  but  where  also  a  quieter  and  less  straining 
life  is  possible.  Their  earnings  are  very  high  if  reckoned  in 
money ;  but  they  have  to  buy  at  very  high  prices,  or  altogether 
dispense  with,  many  of  the  comforts  and  luxuries  which  they 
would  have  obtained  freely,  or  at  low  prices,  if  they  had  lived 
in  more  settled  places.  It  is  however  true  that  many  of 
these  things  are  of  but  little  real  utility,  and  can  be  easily 
foregone,  where  no  one  has  them  and  no  one  expects  them. 
As  population  increases,  the  best  situations  being  already 
occupied,  nature  gives  generally  less  return  of 
on  though^the  ^^^  produce  to  the  marginal  effort  of  the  culti- 
Law    of    Di-  vators  :   and  this  tends  a  little  to  lower  wages. 

minishing  Re-  .  .  . 

turn  may  not  But  oven  m  agriculture  the  Law  of  Increasing 
su-cTngr^  ^^^^  Return  is  constantly  contending  with  that  of 
Diminishing  Return,  and  many  of  the  lands 
which  were  neglected  at  first,  give  a  generous  response  to 
careful  cultivation ;  and  meanwhile  the  development  of  roads 
and  railroads,  and  the  growth  of  varied  markets  and  varied 
industries,  render  possible  innumerable  economies  in  pro- 
duction. Thus  the  actions  of  the  Laws  of  Increasing  and 
Diminishing  Return  appear  pretty  well  balanced,  sometimes 
the  one,  sometimes  the  other  being  the  stronger.  There  is 
no  reason  so  far  why  the  wages  of  labour  (of  a  given  effici- 


THE    INFLUENCE   OF    PROGRESS   ON    VALUE.  361 

ency)  should  fall.  For  if,  taking  one  thing  with  another,  the 
Law  of  Production  is  that  of  Constant  Return,  there  will  be 
no  change  in  the  reward  to  be  divided  between  a  dose  of 
capital  and  labour ;  that  is,  between  capital  and  labour  work- 
ing together  in  the  same  proportions  as  before.  And,  since 
the  rate  of  interest  has  fallen,  the  share  which  capital  takes  of 
this  stationary  joint  reward  is  less  than  before ;  and  therefore 
the  amount  of  it  remaining  for  labour  is  greater  \ 

But  whether  the  Law  of  production  of  commodities  be 
one  of  Constant  Return  or  not,  that  of  the  pro-    ,     .  „ 

^  the  influx  of 

duction  of  new  title-deeds  to  land  is  one  of  capital  be- 
rapidly  Diminisning  Return.  The  influx  of  3"  3[^Jj;r 
foreign  capital,  though  perhaps  as  great  as  ever,  and  wages  tend 
becomes  less  in  proportion  to  the  population ; 
wages  are  no  longer  paid  largely  with  commodities  borrowed 
from  the  old  world :  and  this  is  the  chief  reason  of  the  sub- 
sequent fall  in  Real  Efiiciency  wages ;  that  is,  in  the  neces- 
saries, comforts  and  luxuries  of  life  which  can  be  earned  by 
work  of  a  given  efficiency.  But  there  are  two  other  causes 
tending  to  lower  average  daily  wages  measured  in  money. 
The  first  is,  that  as  the  comforts  and  luxuries  of  civilization 
increase,  the  average  efficiency  of  labour  is  lowered  by  the 
influx  of  immigrants  of  a  less  sturdy  character  than  the  earlier 
settlers.  And  the  second  is,  that  many  of  these  new  comforts 
and  luxuries  do  not  enter  directly  into  money  wage,  but  are 
an  addition  to  it^. 

1  Of  course  the  aggregate  share  of  capital  may  have  increased.  For 
instance,  while  labour  has  doubled  capital  may  have  quadrupled,  and  the  rate 
of  interest  may  be  two-thirds  of  what  it  was ;  and  then,  though  each  dose  of 
capital  gets  a  lower  reward  by  one-third,  and  leaves  for  labour  a  larger 
share  of  the  joint  product  of  a  dose  of  capital  and  labour,  the  aggregate  share 
of  capital  wiU  have  risen  in  the  ratio  of  eight  to  three.  Much  of  the  argument 
of  Mr  Henry  George's  Progress  and  Poverty  is  vitiated  by  his  having  over- 
looked this  distinction. 

2  We  took  account  of  them  when  arriving  at  the  conclusion  that  the  action 
of  the  Law  of  Increasing  Return  would  on  the  whole  countervail  that  of 
Diminishing  Return :  and  we  ought  to  count  them  in  at  their  full  value  when 


362  BOOK  VI.  CH.  XII.   §  2. 

§  2.  The  influence  which  access  to  distant  markets  exerts 
on  the  growth  of  the  National  Dividend  has  been  conspicu- 
ous in  the  history  of  England  also. 

For  more  than  a  hundred  years  she  has  pursued  with 

energy   those    manufacturing    industries    which 

exchanged  ^^     S^^®  ^^  Increasing  Return  to  increasing  capital 

manufactures    and  labour.     She  has  exported  goods  that  are 

for  goods  that  -i  i        i  i 

obey  the  Law  made  the  more  easily,  the  larger  the  scale  on 
Re^um"*^^*"^  which  they  are  produced,  in  exchange  for  some 

raw  produce  that  could  not  be  easily  raised  in 
her  own  climate,  and  for  some  grain  and  meat  which  she 
could  not  have  produced  for  herself,  except  by  a  cultivation 
of  her  land  so  intensive  as  to  call  the  Law  of  Diminishing 
Return  strongly  into  operation.  For  a  long  time  her  exports 
met  with  little  eflfective  competition.  But  as  the  century 
wore   on,  other   nations   developed   their   manufactures,  and 

Englishmen  are  no  longer  able  to  get  in  return 
ally  lost  her  fo^,  Say,  a  bale  of  calico  as  much  of  the  products 
partial  mono-    Qf  backward  countries  as  before.     At  one  time 

poly 

they  could  get  for  the  calico  nearly  as  much  as 
would  have  the  same  cost  of  production  in  that  backward 
country  as  a  similar  bale ;  and  every  improvement  in  England's 
arts  of  manufacture  would  have  increased  considerably  the 
amount  of   foreign  goods  she  could   have   brought   back   in 

return  for  the  product  of  a  given  quantity  of 
but  Ht°ie  so  far  ^^^  ^wn  labour  and  capital.  But  now  every  im- 
as  foreign  trade  provement  in  manufacture  spreads  itself  quickly 

IS  concerned  x  x  •/ 

from  improve-  over  the  Western  World,  and  causes  additional 
ufacture"  "'^"'  ^^^^^  ^^  cotton  to  be  offered  to  backward  coun- 
tries at  a  cheaper  and  still  cheaper  rate.     Those 

tracing  the  changes  in  Real  wages.  Many  historians  have  compared  wages  at 
different  epochs  with  exclusive  reference  to  those  things  which  have  always 
been  in  conunon  consumption.  But  from  the  nature  of  the  case,  it  is  just 
these  things  to  which  the  Law  of  Diminishing  Return  applies ;  and  which  tend 
to  become  scarce  as  population  increases.  The  view  thus  got  is  one-sided  and 
misleading  in  its  general  effect. 


THE  INFLUENCE  OF  PROGKESS  ON  VALUE.    363 

countries  gain  much,  while  England  herself  gains  but  little 
from  the  improvement  and  the  cheapening  of  the  manufacture 
of  the  goods  that  she  sends  them. 

And  she  fares  even  worse  with  the  goods  that  she  sends  to 
other  manufacturing  countries  and  especially  to  America. 
The  amount  of  wheat  which  can  be  bought  in  Illinois  with  a 
ton  of  steel  cannot  be  more  than  the  produce  of  as  much 
capital  and  labour  as  would  make  a  ton  of  steel  in  Illinois  by 
the  new  processes;  and  therefore  it  has  fallen  in  the  same 
proportion  as  the  efficiency  of  English  and  American  labour 
in  making  steel  has  increased.  It  is  for  this  reason,  as  well 
as  because  of  the  heavy  tariffs  levied  on  her  goods  by  many 
countries,  that  in  spite  of  England's  large  trade,  the  progress 
of  invention  in  the  manufacturing  arts  has  added  less  than 
might  have  been  otherwise  expected  to  her  real  National 
Income  or  Dividend. 

It  is  no  slight  gain  that  she  can  make  cheaply  clothes 
and  furniture  and  other  commodities  for  her  own  use:  but 
those  improvements  in  the  arts  of  manufacture  which  she 
has  shared  with  other  nations,  have  not  directly  increased 
th§  amount  of  raw  produce  which  she  can  obtain  from  other 
countries  with  the  product  of  a  given  quantity  of  her  own 
capital  and  labour.  Probably  more  than  three-fourths  of  the 
whole  benefit  she  has  derived  from  the  progress  of  manu- 
facture during  the  present  century  has  been  g^^  ^j^^  -j^^ 
through  its  indirect  influences  in  lowering  the  much  from  the 
cost  of  transport  of  men  and  goods,  of  water  and  transport  of 
light,  of  electricity  and  news ;  for  the  dominant  ^^"°"^  ^^"'^^ 
economic  fact  of  our  own  age  is  the  development  not  of 
the  Manufacturing,  but  of  the  Transport  industries.  It 
is  these  that  are  growing  most  rapidly  in  aggregate  volume 
and  in  individual  power,  and  which  are  giving  rise  to 
most  anxious  questions  as  to  the  tendencies  of  large  capitals 
to  turn  the  forces  of  economic  freedom  to  the  destruction 
of  that  freedom :  but,  on  the  other  hand,  it  is  they  also  which 


364  BOOK  VI.   CH.  XII.  §§  2,  3. 

have   done  by   far   the   most   towards   increasing   England's 

wealth. 

One  eifect  of  this  cheapening  of  transport  has  been  that, 

while  a  century  ago  the  goods  which    England   gained   by 

foreign  trade  were  chiefly  the  luxuries  of  the  well-to-do,  they 

now  consist  largely  of  bulky  commodities  and  especially  wheat 

and   other   kinds   of    simple   food.       And    thus 

toid\specIaiiy  although  England's  gains  from  her  foreign  trade 

on  the  prices  of  j^^y   ^q^   have   been   increasing    quite    in    pro- 
common  food.  "^  .  .  .      .  ,  , 
portion  to  the  great  increase  in  its  volume,  the 

additions  which  it  has  made  to  the  real  purchasing  power  of 

the  wages  of  the  working  classes  have  been  very  great  and 

constantly  increasing. 

§  3.     The  influence,  which  the  improvement  of  the  means 

_  _  .     and  the  arts  of   transport  has  exerted   in   this 

Influence    of  ^    ^ 

progress  on  the  direction,  has  been  aided  by  two  great  changes. 
o1"some  leading  ^he  first  is  the  adoption  of  Free  Trade  in  the 
commodities :  middle  of  this  century ;  and  the  second  is  the 
subsequent  development  of  the  Mississippi  valley 
and  the  Far  West  of  America,  which  are  especially  suited  for 
growing  the  grain  and  the  meat,  that  constitute  the  chief 
food  of  the  English  working  man. 

The  only  parts  of  America  that  were  thickly  peopled  fifty 
years  ago  were  ill-suited  for  growing  wheat ;  and  the  cost  of 
carrying  it  great  distances  by  land  was  prohibitive.  The 
labour  value  of  wheat — that  is  the  amount  of  labour  which  will 
purchase  a  peck  of  wheat — was  then  at  its  highest  point,  and 
now  is  at  its  lowest.  It  would  appear  that  agricultural  wages 
have  been  generally  below  a  peck  of  wheat  a  day ;  but  that 
in  the  first  half  of  the  eighteenth  century  they  were  about  a 
peck,  in  the  fifteenth  a  peck  and  a  half  or  perhaps  a  little 
more,  while  now  they  are  two  or  three  pecks  ^ 

1  Eogers'  estimates  for  the  Middle  Ages  are  higher :  but  he  seems  to  have 
taken  the  wages  of  the  more  favoured  part  of  the  population  as  representative 
of  the  whole.    In  the  Middle  Ages,  even  after  a  fairly  good  harvest,  the 


THE  INFLUENCE  OF  PROGRESS  ON  VALUE.    365 

It  is  true  that,  where  population  is  very  sparse,  nature 
supplies  grass  and  therefore  animal  food  almost 
gratis;  and  in  South  America  beggars  pursue 
their  calling  on  horseback.  During  the  Middle  Ages  however 
the  population  of  England  was  always  dense  enough  to  give 
a  considerable  labour  value  to  meat,  though  it  was  of  poor 
quality  \  A  century  ago  very  little  meat  was  eaten  by  the 
working  classes ;  while  now,  though  its  price  is  a  little  higher 
than  it  was  then,  they  probably  consume  more  of  it,  on  the 
average,  than  at  any  other  time  in  English  history. 

Turning  next  to  the  rent  of  house  room,  we  find  that 
ground-rents  in  towns  have  risen,  both  extensively 
and  intensively.  For  an  increasing  part  of  the 
population  is  living  in  houses  on  which  ground-rents  at  an 
urban  scale  have  to  be  paid,  and  that  scale  is  rising.  But 
house  rent  proper,  that  is  what  remains  of  the  total  rent  after 
deducting  the  full  rental  value  of  the  ground,  is  probably 
little,  if  at  all,  higher  than  at  any  previous  time  for  similar 
accommodation ;  for  the  rate  of  profits  on  the  turnover  which 
is  earned  by  capital  engaged  in  building  is  now  low,  and  the 
labour  cost  of  building  materials  has  not  much  altered.  And 
it  must  be  remembered  that  those  who  pay  the  high  town 
rents  get  in  return  the  amusements  and  other  advantages  of 
modern  town  life,  which  many  of  them  would  not  be  willing 
to  forego  for  the  sake  of  a  much  greater  gain  than  their  total 
rent. 


wheat  was  of  a  lower  quality  than  the  ordinary  wheat  of  to-day ;  while  after 
a  bad  harvest  much  of  it  was  so  musty  that  now-a-days  it  would  not  be  eaten 
at  all ;  and  the  wheat  seldom  became  bread  without  paying  a  high  monopoly 
charge  to  the  mill  belonging  to  the  lord  of  the  manor. 

1  For  cattle,  though  only  about  a  fifth  as  heavy  as  now,  had  very  large 
frames :  their  flesh  was  chiefly  in  those  parts  from  which  the  coarsest  joints 
come ;  and  since  they  were  nearly  starved  in  the  winter  and  fed  up  quickly  on 
the  summer  grass,  the  meat  contained  a  large  percentage  of  water,  and  lost  a 
great  part  of  its  weight  in  cooking.  At  the  end  of  the  summer  they  were 
slaughtered  and  salted:  and  salt  was  dear.  Even  the  well-to-do  scarcely 
tasted  fresh  meat  during  the  winter. 


366  BOOK  VI.  CH.  XII.  §§  3,  4. 

The  labour  value  of  wood,  though  lower  than  at  the 
beginning  of  the  century,  is  higher  than  in  the  Middle  Ages  : 
but  that  of  mud,  brick  or  stone  walls  has  not  much  changed ; 
while  that  of  iron — to  say  nothing  of  glass — has  fallen  much. 

And  indeed  the  popular  belief  that  house  rent  proper  has 
risen,  appears  to  be  due  to  an  imperfect  acquaintance  with 
the  way  in  which  our  forefathers  were  really  housed.  The 
modern  suburban  artisan's  cottage  contains  sleeping  accom- 
modation far  superior  to  that  of  the  gentry  in  the  Middle 
Ages ;  and  the  working  classes  had  then  no  other  beds  than 
loose  straw-,  reeking  with  vermin,  and  resting  on  damp  mud 
floors.  But  even  these  were  probably  less  unwholesome, 
when  bare  and  shared  between  human  beings  and  live  stock, 
than  when  an  attempt  at  respectability  covered  them  with 
rushes,  which  were  nearly  always  vile  with  long  accumulated 
refuse.  It  is  undeniable  that  the  housing  of  the  very  poorest 
classes  in  our  towns  now  is  destructive  both  of  body  and 
soul :  and  that  with  our  present  knowledge  and  resources  we 
have  neither  cause  nor  excuse  for  allowing  it  to  continue. 
And  it  is  true  that  in  earlier  times  bad  housing  was  in  so  far 
a  less  evil  than  now,  as  those  who  were  badly  housed  by  night 
had  abundant  fresh  air  by  day.  But  a  long  series  of  records, 
ending  with  the  evidence  of  Lord  Shaftesbury  and  others 
before  the  recent  Commission  on  the  Housing  of  the  Poor, 
establishes  the  fact  that  all  the  horrors  of  the  worst  dens  of 
modern  London  had  their  counterpart  in  worse  horrors  of  the 
lairs  of  the  lowest  stratum  of  society  in  every  previous  age. 

Fuel,  like  grass,  is  often  a  free  gift  of  nature  to  a  sparse 
population;  and  during  the  Middle  Ages  the 
cottagers  could  generally,  though  not  always,  get 
the  little  brushwood  fire  needed  to  keep  them  warm  as  they 
huddled  together  round  it  in  huts  which  had  no  chimney 
through  which  the  heat  could  go  to  waste.  But  as  population 
increased  the  scarcity  of  fuel  pressed  heavily  on  the  working 
classes,  and  would  have  arrested  England's  progress  altogether, 


THE  INFLUENCE  OF  PROGRESS  ON  VALUE.    367 

had  not  coal  been  ready  to  take  the  place  of  wood  as  fuel  for 
domestic  purposes,  as  well  as  for  smelting  iron.  It  is  now  so 
cheap  that  even  the  comparatively  poor  can  keep  themselves 
warm  indoors  without  living  in  an  unwholesome  and  stupefy- 
ing atmosphere. 

This  is  one  of   the  great  services  that  coal  has  wrought 
for  modern  civilization.     Another  is  to  provide 
cheap  under-clothing,  without  which  cleanliness 
is  impossible  for  the  masses  of  the  people  in  a  cold  climate : 
and  that  is  perhaps  the  chief  of  the  benefits  that  England  has 
gained  from  the  direct  application  of   machinery  to  making 
commodities  for  her  own  use.     Another,   and   not   less   im- 
portant service,  is  to  provide  abundant  water, 
even  in  large  towns';    and  another  to   supply, 
with  the  aid  of  mineral  oil,   that  cheap  and  artificial  light 
which  is  needed  not  only  for  some  of  man's  work, 
but,  what  is  of  higher  moment,  for  the  good  use  of 
his  evening  leisure.     To  this  group  of  requisites  for  a  civilized 
life,  derived  from  coal  on  the  one  hand,  and  modern  means  of 
transport  on  the  other,  we  must  add,  as  has  just  been  noticed, 
the  cheap  and  thorough  means  of  communication     news  and 
of  news  and  thought  by  steam-presses,  by  steam-      travel, 
carried  letters  and  steam-made  facilities  for  travel. 

§  4.  We  have  seen  that  the  National  Dividend  is  at 
once  the  aggregate  net  product  of,  and  the  sole  ^^^^  influence 
source  of  payment  for,  all  the  agents  of  pro-  of  progress  on 
duction  within  the  country ;  that  the  larger  it  is,  ^he  chief  a- 
the  larger,  other  things  being  equal,  will  be  the  e^"*?  °5  p^°-  • 
share  of  each  agent  of  production,  and  that  an 
increase  in  the  supply  of  any  agent  will  generally  lower  its 
price,  to  the  benefit  of  other  agents. 

1  Primitive  appliances  will  bring  water  from  high  ground  to  a  few  public 
fountains :  but  the  omnipresent  water  supply  which  both  in  its  coming  and  its 
going  performs  essential  services  for  cleanUness  and  sanitation,  would  be  im- 
possible without  coal-driven  steam-pumps  and  coal-made  iron  pipes. 


368  BOOK  VI.  CH.  XII.  §1  4—6. 

This  general  principle  is  specially  applicable  to  the  case 
it  has  some-  ^^  land.  An  increase  in  the  amount  or  pro- 
times  lowered  ductiveness  of  the  land  that  supplies  any  market 

the     value    of  .  .  i       / 

English  agri-  redounds  m  the  first  instance  to  the  benefit  of 
cu  tura  and,  ^j^^g^  Capitalists  and  workers  who  are  in  pos- 
session of  other  agents  of  production  for  the  same  market. 
And  the  influence  on  values  which  has  been  exerted  in  the 
modern  age  by  the  new  means  of  transport  is  nowhere  so 
conspicuous  as  in  the  history  of  land;  its  value  rises  with 
every  improvement  in  its  communications  with  markets  in 
which  its  produce  can  be  sold,  and  its  value  falls  with  every 
new  access  to  its  own  markets  of  produce  from  more  distant 
places. 

But  anything  that  promotes  the  prosperity  of  the  people 

promotes  also  in  the  long  run  that  of  the  land- 

cuiturai°  a^if""  loi'ds  of  the  soil.     It  is  true  that  English  rents 

urban   land       yq^q  very  fast  when,   at  the  beginnins:  of   this 

taken  together.  •'  .  »  i      i   ,  f    t 

century,  a  series  of  bad  harvests  struck  down  a 
people  that  could  not  import  their  food ;  but  a  rise  so  caused 
could  not  from  the  nature  of  the  case  have  gone  very  much 
further.  And  the  adoption  of  free  trade  in  corn  in  the  middle 
of  the  century,  followed  by  the  expansion  of  American  wheat- 
fields,  is  rapidly  raising  the  real  value  of  the  land  urban  and 
rural  taken  together ;  that  is,  it  is  raising  the  amount  of  the 
necessaries,  comforts  and  luxuries  of  life  which  can  be  pur- 
chased by  the  aggregate  rental  of  all  the  landowners  urban 
and  rural  taken  together^. 

1  It  seems  that  the  agricultural  (money)  rent  of  England  doubled  between 
1795  and  1815,  and  then  fell  by  a  third  tiU  1822 ;  after  that  time  it  has  been 
alternately  rising  and  falling ;  and  it  is  now  about  45  or  50  millions  as  against 
50  or  55  millions  about  the  year  1873,  when  it  was  at  its  highest.  It  was 
about  30  millions  in  1810,  16  milhons  in  1770,  and  6  miUions  in  1600.  But  the 
rental  of  urban  land  in  England  is  now  rather  greater  than  the  rent  of 
agricultural  land :  and  in  order  to  estimate  the  full  gain  of  the  landlords  from 
the  expansion  of  population  and  general  progress,  we  must  reckon  in  the 
values  of  the  land  on  which  there  are  now  railroads,  mines,  docks,  &c.  Taken 
all  together,  the  money  rental  of  England's  soil  is  probably  twice  as  high,  and 


r 


THE  INFLUENCE  OF  PROGRESS  ON  VALUE.     369 

§  5.     Political  Arithmetic  may  be  said  to  have  begun  in 
England  in  the  seventeenth  century ;   and  from 
that  time  onwards  we  find  a  constant  and  nearly  incr^ase^d^Sie^ 
steady  increase  in  the  amount  of   accumulated  supply  of 
wealth  per  head  of  the  population. 

This  increase  of  capital  per  head  tended  to  diminish  its 
marginal  utility,  and  therefore  the  rate  of  interest  and  has  lower - 
on  new  investments ;  but  not  uniformly,  because  ^^  '*®  propor- 
there  were  meanwhile  great  variations  in  the  not  its  total  in- 
demand  for  capital,  both  for  political  and  military  *=°"^^- 
and  for  industrial  purposes.  Thus  the  rate  of  interest  which 
was  vaguely  reported  to  be  10  per  cent,  during  a  great  part 
of  the  Middle  Ages,  had  sunk  to  3  per  cent,  in  the  earlier 
half  of  the  eighteenth  century ;  but  the  immense  industrial 
and  political  demand  for  capital  raised  it  again,  and  it  was 
relatively  high  during  the  great  war.  It  fell  as  soon  as  the 
political  drain  had  ceased ;  but  it  rose  again  in  the  middle  of 
this  century,  when  railways  and  the  development  of  the 
Western  States  of  America  and  of  Australia  made  a  great 
new  demand  for  capital.  These  new  demands  have  not 
slackened;  but  the  rate  of  interest  is  again  falling  fast,  in 
consequence  of  the  great  recent  accumulations  of  wealth  in 
England,  on  the  Continent,  and  above  all  in  America. 

§  6.     The  growth  of  general  enlightenment  and  of  a  sense 
of  responsibility  towards  the  young  has  turned  a 
great  deal  of  the  increasing  wealth  of  the  nation  lative  fail  in 
from  investment  as  Material  capital  to  invest-  trained"a'bih^t°^ 
ment  as  Personal  capital.     There  has  resulted  a 
largely  increased  supply  of  trained  abilities,  which  has  much 
increased    the   National   Dividend,    and   raised   the   average 
income  of  the  whole  people :  but  it  has  taken  away  from  these 

its  Real  rental  three  or  four  times  as  high,  as  it  was  when  the  corn  laws  were 
repealed. 

Progress  may  lower  the  value  of  the  appliances  of  production,  when  this 
can  be  separated  from  that  of  their  sites ;  but  not  of  such  things  as  railways, 
when  the  value  of  their  sites  is  reckoned  in.    See  Principles  VI.  xu.  7. 
M.  24 


370  BOOK  vi.  CH.  xii.  §  6. 

trained  abilities  much  of  that  scarcity  value  which  they  used 
to  possess,  and  has  lowered  their  earnings  not  indeed  absolute- 
ly, but  relatively  to  the  general  advance ;  and  it  has  caused 
many  occupations,  which  not  long  ago  were  accounted  skilled, 
and  which  are  still  spoken  of  as  skilled,  to  rank  with  unskilled 
labour  as  regards  wages. 

A  striking  instance  is  that  of  writing.  It  is  true  that 
many  kinds  of  office  work  require  a  rare  combination  of  high 
mental  and  moral  qualities ;  but  almost  any  one  can  be  easily 
taught  to  do  the  work  of  a  copying  clerk,  and  probably  there 
will  soon  be  few  men  or  women  in  England  who  cannot  write 
fairly  well.  When  all  can  write,  the  work  of  copying,  which 
used  to  earn  higher  wages  than  almost  any  kind  of  manual 
labour,  will  rank  among  unskilled  trades  \ 

Again,  a  new  branch  of  industry  is  often  difficult  simply 

because  it  is  unfamiliar ;  and  men  of  great  force 

oid*^?nd  Vmi-  ^^^^  skill  are  required  to  do  work,  which  can  be 

liar  skilled  oc-  done  by  men  of   ordinary  capacity  or  even  by 

cupations  tend  i       i  -n  ^  J       /     ^      i. 

to  fall  relative-  women  and  children,  when  the  track  has  once 
Ifew  ^^°^^  '"  ^®®^  ^®^^  beaten :  its  wages  are  high  at  first, 
but  they  fall  as  it  becomes  familiar.  And  this 
has  caused  the  rise  of  average  wages  to  be  underrated,  because 
it  so  happens  that  many  of  the  statistics,  which  seem  typical 
of  general  movements  of  wages,  are  taken  from  trades  which 
were  comparatively  new  a  generation  or  two  ago,  and  are 
now  within  the  grasp  of  men  of  much  less  real  ability  than 
those  who  pioneered  the  way  for  them^. 

1  In  fact  the  better  kinds  of  artisan  work  educate  a  man  more,  and  will  be 
better  paid  than  those  kinds  of  clerk's  work  which  call  for  neither  judgment 
nor  responsibility.  And,  as  a  rule,  the  best  thing  that  an  artisan  can  do  for 
his  son  is  to  bring  him  up  to  do  thoroughly  the  work  that  Ues  at  his  hand,  so 
that  he  may  understand  the  mechanical,  chemical  or  other  scientific  principles 
that  bear  upon  it ;  and  may  enter  into  the  spirit  of  any  new  improvement  that 
may  be  made  in  it.  If  his  son  should  prove  to  have  good  natural  abilities,  he 
is  far  more  likely  to  rise  to  a  high  position  in  the  world  from  the  bench  of  aa 
artisan  than  from  the  desk  of  a  clerk. 

2  Comp.  Book  IV.  Ch,  vi.  §§  1,  2;  and  Ch.  ix.  especially  §  3.    As  the  trade 


THE   INFLUENCE  OF   PROGRESS   ON  VALUE.  371 

The  consequence  of  such  changes  as  these  is  to  increase 
the  number  of  those  employed  in  occupations  which  are 
called  skilled,  whether  the  term  is  now  properly  applied  or 
not :  and  this  constant  increase  in  the  numbers  of  workers  in 
the  higher  classes  of  trades  has  caused  the  average  of  all 
labour  to  rise  much  faster  than  the  average  of  representative 
wages  in  each  trade'. 

In   the   middle  ages,  though   some   men   of   great  ability 
remained  artisans  all  their  lives,  and  became  artists ;  yet  as 
a  class  the  artisans  ranked  more  nearly  with  the 
unskilled  labourers  than  they  do  now.     At  the      wa^ges"^ 
beginning  of  the  new  industrial  era  a  hundred 
years  ago  the  artisans  had  lost  much  of   their  old  artistic 
traditions  and  had  not  yet  acquired  that  technical  command 
over  their  instruments,  that  certainty  and  facility  in  the  exact 
performance  of   difficult  tasks  which  belong  to  the  modern 
skilled   artisan;    and  observers   early  in   this   century  were 
struck  by  the  social  gulf  that  was  being  opened  out  in  their 

progresses,  improvements  in  machinery  are  sure  to  lighten  the  strain  of  ac- 
complishing any  given  task ;  and  therefore  to  lower  task  wages  rapidly.  But 
meanwhile  the  pace  of  the  machinery,  and  the  quantity  of  it  put  under  the  charge 
of  each  worker,  may  be  increased  so  much  that  the  total  strain  involved  in  the 
day's  work  is  greater  than  before.  On  this  subject  employers  and  employed 
frequently  differ.  It  is  for  instance  certain  that  Time  wages  have  risen  in  the 
textile  trades;  but  the  employes  aver,  in  contradiction  to  the  employers,  that 
the  strain  imposed  on  them  has  increased  more  than  in  proportion ;  that  is, 
that  Efficiency-wages  have  fallen.  In  this  controversy  wages  have  been 
estimated  in  money;  but  when  account  is  taken  of  the  increase  in  the 
purchasing  power  of  money  there  is  no  doubt  that  Real  Efficiency- wages  have 
risen. 

1  This  may  be  made  clearer  by  an  example.  If  there  are  500  men  in  grade 
A  earning  12s.  a  week,  400  in  grade  B  earning  25s.  and  100  in  grade  C  earning 
40s.  the  average  wages  of  the  1000  men  are  20s.  If  after  a  time  300  from  grade 
A  have  passed  on  to  grade  B,  and  300  from  grade  B  to  grade  C,  the  wages  in 
each  grade  remaining  stationary,  then  the  average  wages  of  the  whole 
thousand  men  will  be  about  28s.  &d.  And  even  if  the  rate  of  wages  in  each 
grade  had  meanwhile  fallen  10  per  cent.,  the  average  wages  of  all  would  still 
be  about  25s.  6<?.,  that  is  would  have  risen  more  than  25  per  cent.  Neglect 
of  such  facts  as  these,  as  Mr  Giffen  has  pointed  out,  is  apt  to  cause  great 
errors. 

k24— 2 


372  BOOK  VI.   CH.  XII.   §§  (),  7. 

own  generation  between  the  artisan  and  the  unskilled  labourer. 
This  social  chansre  was  a  consequence  partly  of 

rose  relatively  ,  n7  r«i  .I'l 

to  those  of  un-  the  increase  of  the  wages  of  the  artisan,  which 
at 'Ihe^  begin"/  ^^se  to  about  double  those  of  the  unskilled 
ning  of  the        labourer ;    and   partly  of   the   same   cause   that 

secured  him  his  high  wages,  that  is  the  great 
increase  in  the  demand  for  highly  skilled  labour,  especially  in 
the  metal  trades,  and  the  consequent  rapid  absorption  of  the 
strongest  characters  among  the  labourers  and  their  children 
into  the  ranks  of  the  artisans;  for  the  breaking  down,  just 
at  that  time,  of  the  old  exclusiveness  of  the  artisans,  had  made 
them  less  than  before  an  aristocracy  by  birth  and  more  than 
but  now  that  ^^^^^^  ^^  aristocracy  by  worth.  But  about  a 
tendency  is  re-  generation  ago,  as  has  just  been  explained,  some 

of  the  simpler  forms  of  skilled  trades  began  to 
lose  their  scarcity  value,  as  their  novelty  wore  oft';  and  at  the 
same  time  continually  increasing  demands  began  to  be  made 
on  the  ability  of  those  in  some  trades,  that  are  traditionally 
ranked  as  unskilled.  The  navvy  for  instance,  and  even  the 
agricultural  labourer,  have  often  to  be  trusted  with  expensive 
and  complicated  machinery,  which  a  little  while  ago  was 
thought  to  belong  only  to  the  skilled  trades,  and  the  Real 
wages  of  these  two  representative  occupations  are  rising 
fast^ 

Again,  there  are  some  skilled  and  responsible  occupations, 
such  as  those  of  the  head  heaters  and  rollers  in  iron  works, 
which  require  great  physical  strength,  and  involve  much 
discomfort :    and  in  them  wages  are   very   high.       For   the 

1  The  rise  of  wages  of  agricultural  labourers  would  be  more  striking  than 
it  is,  did  not  the  spread  of  modern  notions  to  agricultural  disti'icts  cause  many 
of  the  ablest  children  born  there  to  leave  the  fields  for  the  railway  or  the 
workshop,  to  become  policemen,  or  to  act  as  carters  or  porters  in  towns. 
Perhaps  there  is  no  stronger  evidence  of  the  benefits  of  modern  education  and 
economic  progress  than  the  fact  that  those  who  are  left  behind  in  the  fields, 
though  having  less  than  an  average  share  of  natural  abilities,  are  yet  able  to 
earn  much  higher  Real  wages  than  their  fathers. 


THE  INFLUENCE  OF  PROGRESS  ON  VALUE.    373 

temper  of  the  age  makes  those  who  can  do  high  class  work, 
and  can  earn  good  wages  easily,  refuse  to  undergo  hardship, 
except  for  a  very  high  reward. 

§  7.     We  may  next  consider  the  changes  in  the  relative 
wages  of  old  and  young  men,  of  women  and  children. 

The  conditions  of  industry  change  so  fast  that  long  expe- 
rience is  in  some  trades  almost  a  disadvantage, 
and  in  many  it  is  of  far  less  value  than  a  quick-  lative   fall    in 
ness  in  taking  hold  of  new  ideas  and  adapting  *^5  wages   of 

^  ^  ,   .  r       &    elderly  men ; 

one's  habits  to  new  conditions.  In  these  trades 
an  elderly  man  finds  it  difficult  to  get  employment  except 
when  trade  is  brisk,  at  all  events  if  he  is  a  member  of  a 
union  which  will  not  allow  him  to  work  for  less  than  the  full 
wages  of  the  district.  In  any  case  he  is  likely  to  earn  less 
after  he  is  fifty  years  old  than  before  he  is  thirty ;  and  the 
knowledge  of  this  is  tempting  artisans  to  follow  the  example 
of  unskilled  labourers,  whose  natural  inclination  to  marry 
early  has  always  been  encouraged  by  the  desire  that  their 
family  expenses  may  begin  to  fall  off"  before  their  own  wages 
begin  to  shrink.  Trades-unions  are  afraid  that  abuses  might 
creep  in  if  they  allowed  men  "with  grey  hairs"  to  compete 
for  employment  at  less  than  full  wages ;  but  many  of  them 
are  coming  to  see  that  it  is  to  their  own  interest,  as  it 
certainly  is  to  that  of  the  community,  that  such  men  should 
not  be  forced  to  be  idle. 

A  second  and  even  more  injurious  tendency  of  the  same 
kind  is  that  of   the  wages  of    children  to  rise 

*="  and    a    rise  in 

relatively  to  those  of  their  parents.  Machinery  the  wages  of 
has  displaced  many  men,  but  not  many  boys ;  °^^  ^"  ^^^  ^' 
the  customary  restrictions  which  excluded  them  from  some 
trades  are  giving  way ;  and  these  changes,  together  with  the 
spread  of  education,  while  doing  good  in  almost  every  other 
direction,  are  doing  harm  in  this  that  they  are  enabling  boys, 
and  even  girls,  to  set  their  parents  at  defiance  and  start  in 
life  on  their  own  account. 


374  BOOK  VI.  CH.  XII.  §§  7 — 9. 

The  wages  of   women  are  for  similar  reasons  rising  fast 
relatively  to  those  of  men.     And  this  is  a  great 

and  of  women.         .        .  »  .  ,  i        i  i     . 

gam  m  so  tar  as  it  tends  to  develop  their 
faculties ;  but  an  injury  in  so  far  as  it  tempts  them  to  neglect 
their  duty  of  building  up  a  true  home,  and  of  investing  their 
efforts  in  the  Personal  capital  of  their  children's  character  and 
abilities. 

§  8.     The  relative  fall  in  the  incomes  to  be  earned  by 

moderate  ability,  however  carefully  trained,  is 
of^  exc^ep*Sonai  accentuated  by  the  rise  in  those  that  are  obtained 
genius  are  ris-  ^y  many  men  of   extraordinary  ability.     There 

never  was  a  time  at  which  moderately  good  oil 
paintings  sold  more  cheaply  than  now,  and  there  never  was  a 
time  at  which  first-rate  paintings  sold  so  dearly.  A  business 
man  of  average  ability  and  average  good  fortune  gets  now  a 
lower  rate  of  profits  on  his  capital  than  at  any  previous  time ; 
while  yet  the  operations,  in  which  a  man  exceptionally 
favoured  by  genius  and  good  luck  can  take  part,  are  so 
extensive  as  to  enable  him  to  amass  a  huge  fortune  with  a 
rapidity  hitherto  unknown. 

The  causes  of   this  change  are   chiefly  two;    firstly,   the 

general  growth  of  wealth ;  and  secondly,  the 
as  a  result  of  development  of  new  facilities  for  communication, 

two  causes  ^  ^  ' 

by  which  men,  who  have  once  attained  a  com- 
manding position,  are  enabled  to  apply  their  constructive  or 
speculative  genius  to  undertakings  vaster,  and  extending  over 
a  wider  area,  than  ever  before. 

It  is  the  first  cause,  almost  alone,  that  enables  some  bar- 
of  which  one  Hsters  to  command  very  high  fees;  for  a  rich 
acts  almost  a-  client  whose  reputation,  or  fortune,  or  both,  are 

lone  on  profes-  .  . 

sionai  in-  at  stake  will  scarcely  count  any  price  too  high  to 

comes,  secure  the  services  of  the  best  man  he  can  get : 

and  it  is  this  again  that  enables  jockeys  and  painters  and 
musicians  of  exceptional  ability  to  get  very  high  prices.  In 
all  these  occupations  the  highest  incomes  earned  in  our  own 


THE   INFLUENCE   OF   PROGRESS   ON   VALUE.  375 

generation  are  the  highest  that  the  world  has  yet  seen.  But 
so  long  as  the  number  of  persons  who  can  be  reached  by  a 
human  voice  is  strictly  limited,  it  is  not  very  likely  that  any 
singer  will  make  an  advance  on  the  £10,000,  said  to  have  been 
earned  in  a  season  by  Mrs  Billington  at  the  beginning  of  this 
century,  nearly  as  great  as  that  which  the  business  leaders 
of  the  present  generation  have  made  on  those  of  the  last. 

For   the   two   causes   have  co-operated  to  put  enormous 
power  and  wealth  in  the  hands  of  those  business 

p  ,.  ,        ,  ^      T    n      ,      while  both  act 

men  01  our  own  generation  who  have  had  nrst-  fuUy  ^it^  re- 
rate  genius,  and  have  been  favoured  by  fortune,  e^^^  *°  ^"s^- 

rni.        .  ,  .  •         A  •  1  ness  incomes. 

inis  IS  most  conspicuous  111  America,  where 
several  men  who  began  life  poor,  have  amassed  more  than 
.£10,000,000  each.  It  is  true  that  a  great  part  of  these  gains 
have  come,  in  some  cases,  from  the  wrecks  of  the  rival 
speculators  who  had  been  worsted  in  the  race.  But  in  others, 
as  for  instance,  that  of  the  late  Mr  Yanderbilt,  they  were 
earned  mainly  by  the  supreme  economizing  force  of  a  great 
constructive  genius  working  at  a  new  and  large  problem  with 
a  free  hand :  and  Mr  Vanderbilt  probably  saved  to  the  people 
of  the  United  States  more  than  he  accumulated  himself. 

§  9.     But  these  fortunes  are  exceptional.      The  diffusion 
of  knowledge,  the  improvement  of  education,  the  „  .  .   ^ 

n   J  IT  »  Progress  IS  fast 

growth  of  prudent  habits  among  the  masses  of  improving  the 
the  people,  and  the  opportunities  which  the  new  l^^  great  body 
methods  of  business  offer  for  the  safe  investment  °^  ^^^  working 

classes. 

of  small  capitals  : — all  these  forces  are  telling  on 
the  side  of  the  poorer  classes  as  a  whole  relatively  to  the 
richer.  The  returns  of  the  income  tax  and  the  house  tax,  the 
statistics  of  consumption  of  commodities,  the  records  of 
salaries  paid  to  the  higher  and  the  lower  ranks  of  servants 
of  Government  and  public  companies,  tend  in  the  same 
direction,  and  indicate  that  middle  class  incomes  are  in- 
creasing faster  than  those  of  the  rich;  that  the  earnings  of 
artisans  are  increasing  faster  than  those  of  the  professional 


376  BOOK  VI.  CH.  XII.  §  9. 

classes,  and  that  the  wages  of  healthy  and  vigorous  unskilled 
labourers  are  increasing  faster  even  than  those  of  the  average 
artisan'. 

It  must  be  admitted  that  a  rise  in  wages  would  lose  part 
The  incon-  of  its  benefit,  if  it  were  accompanied  by  an  in- 
stancy of  em-  crease  in  the  time  spent  in   enforced   idleness. 

ployment  in  i>  ^  -  -t  i 

modern  in-  Inconstancy  of  employment  is  a  great  evil,  and 
to^^bZexa^gge-  ^'ig^^ly  attracts  public  attention.  But  several 
rated.  causes  combine  to  make  it  appear  to  be  greater 

than  it  really  is. 

When  a  large  factory  goes  on  half  time,  rumour  bruits 
the  news  over  the  whole  neighbourhood,  and  perhaps  the 
newspapers  spread  it  all  over  the  country.  But  few  people 
know  when  an  independent  workman,  or  even  a  small  em- 
ployer, gets  only  a  few  days'  work  in  a  month;  and  in  conse- 
quence whatever  suspensions  of  industry  there  are  in  modern 
times,  are  apt  to  seem  more  important  than  they  are  relatively 
to  those  of  earlier  times.  In  earlier  times  some  labourers 
were  hired  by  the  year :  but  they  were  not  free,  and  were 
kept  to  their  work  by  personal  chastisement.  There  is  no 
good  cause  for  thinking  that  the  mediaeval  artisan  had  con- 
stant employment.  And  the  most  persistently  inconstant 
employment  now  to  be  found  in  Europe  is  in  those  non- 
agricultural  industries  of  the  West  which  are  most  nearly 
mediaeval  in  their  methods,  and  in  those  industries  of  Eastern 
and  Southern  Europe  in  which  mediaeval  traditions  are 
strongest. 

In  many  directions  there  is  a  steady  increase  in  the  pro- 
portion of   employes  who  are  practically  hired  by  the  year. 

1  A  great  body  of  statistics  relating  to  nearly  all  civilized  countries,  and 
uniformly  tending  in  this  direction  is  contained  in  M.  Leroy  Beaulieu's  Essai 
stir  la  repartition  des  Michesses,  et  sur  la  tendance  d  une  moindre  inegalite  des 
conditions,  1881.  Mr  Goschen's  Address  to  the  Eoyal  Statistical  Society  in 
1887  on  The  increase  of  moderate  incomes  points  the  same  way ;  and  above  all 
so  do  the  very  careful  and  instructive  studies  of  wage  statistics  made  by 
Mr  Giflfen  in  his  private  and  in  his  official  capacity. 


THE  INFLUENCE  OF  PROGRESS  ON  VALUE.     377 

This  is  for  instance  the  general  rule  in  many  of  those  trades 
connected  with  Transport  which  are  growing  fastest,  and  are 
the  representative  industries  of  the  second  half  of  the  nine- 
teenth century,  as  the  manufacturing  trades  were  of  the  first 
half.  And  though  the  rapidity  of  invention,  the  fickleness 
of  fashion,  and  above  all  the  instability  of  Credit,  do  certainly 
introduce  disturbing  elements  into  modern  industry ;  yet,  as 
we  shall  see  presently,  other  influences  are  working  strongly 
in  the  opposite  direction,  and  there  seems  to  be  no  good 
reason  for  thinking  that  inconstancy  of  employment  is  in- 
creasing on  the  whole. 

Progress  then  has  done  much :  but  there  still  remains  a 
great,  and — in  consequence  of  improved  sanita- 
tion— perhaps  a  growing  Residuum  of  persons  those"who  are 
who  are  physically,  mentally  or  morally  incapable  ""^^  ^°*"  ^^^^ 
of  doing  a  good  day's  work  with  which  to  earn 
a  good  day's  wage ;  and  some  of  those  who  are  called  artisans, 
together  with  many  unskilled  labourers,  work  hard  for  over 
long  hours,  and  provide  for  others  the  means  of  refinement 
and  luxury,  but  obtain  neither  for  themselves  nor  their 
children  the  means  of  living  a  life  that  is  worthy  of  man. 

There  is  a  strong  temptation  to  over-state  the  economic 
evils  of  our  own  age,  and  to  ignore  the  existence 
of  similar  and  worse  evils  in  earlier  ages ;  for  by  tion  to  under- 
so  doing  we  may  for  the  time  stimulate  others,  as  ^*^^*V^^  bene- 

®  •'  '  fits  of  progress. 

well  as  ourselves,  to  a  more  intense  resolve  that 
the  present  evils  shall  no  longer  be  allowed  to  exist.  But  it 
is  not  less  wrong,  and  generally  it  is  much  more  foolish,  to 
palter  with  truth  for  a  good  than  for  a  selfish  cause.  And 
the  pessimist  descriptions  of  our  own  age,  combined  with 
romantic  exaggerations  of  the  happiness  of  past  ages,  must 
tend  to  the  setting  aside  of  methods  of  progress,  the  work  of 
which  if  slow  is  yet  solid ;  and  to  the  hasty  adoption  of  others 
of  greater  promise,  but  which  resemble  the  potent  medicines 
of  a  charlatan,  and  while  quickly  effecting  a  little  good,  sow 


378  BOOK  VI.  CH.  XII.  §§  9,  10. 

the  seeds  of  widespread  and  lasting  decay.  This  impatient 
insincerity  is  an  evil  only  less  great  than  that  moral  torpor 
which  can  endure  that  we,  with  our  modern  resources  and 
knowledge,  should  look  on  contentedly  at  the  continued 
destruction  of  all  that  is  worth  having  in  multitudes  of 
human  lives,  and  solace  ourselves  with  the  reflection  that 
anyhow  the  evils  of  our  own  age  are  less  than  those  of  the 
past. 

§  10.  We  have  not  yet  reached  the  stage  at  which  we  can 
The  broader  Profitably  examine  the  general  effects  of  economic 
influences  of  progress  on  human  well  being.  But  it  will  be 
pro  ress.  well,  before  ending  this  Book,  to  pursue  a  little 

further  the  line  of  thought  on  which  we  started  in  Book  iii., 
when  considering  Wants  in  relation  to  Activities.  We  there 
saw  reasons  for  thinking  that  the  true  key-note  of  economic 
progress  is  the  development  of  new  activities  rather  than  of 
new  wants ;  and  we  may  now  make  some  study  of  a  question 
that  is  of  special  urgency  in  our  own  generation ;  viz. — what 
is  the  connection  between  changes  in  the  manner  of  living  and 
the  rate  of  earnings ;  how  far  is  either  to  be  regarded  as  the 
cause  of  the  other,  and  how  far  as  the  effect. 

Let  us  take  the  term  the  Standard  op  Life  to  mean  the 
Standard  of  Activities  and  of  Wants.     Thus  a 

of  Tife^^  rise  in  the  Standard  of  Living  implies  an  increase 
of  intelligence,  and  energy  and  self-respect; 
leading  to  more  care  and  judgment  in  expenditure,  and  to  an 
avoidance  of  food  and  drink  that  gratify  the  appetite  but 
afford  no  strength,  and  of  ways  of  living  that  are  unwhole- 
some physically  and  morally.  A  rise  in  the  Standard  of  Life 
for  the  whole  population  will  much  increase  the  National 
Dividend,  and  the  share  of  it  which  accrues  to  each  grade  and 
to  each  trade ;  and  a  rise  in  the  Standard  of  Life  for  any  one 
trade  or  grade  will  raise  their  efiiciency  and  their  own  real 
wages ;  while  it  will  at  the  same  time  enable  others  to  obtain 
their  assistance  at  a  cost  somewhat  less  in  proportion  to  its 


THE  INFLUENCE   OF  PROGRESS  ON   VALUE.  379 

efficiency ;  and  of  course  it  will  increase  the  National  Dividend 
a  little. 

But  many  writers  have  spoken  of  the  influence  exerted 
on  wages  by  a  rise  not  in  the  Standard  of  Life^  p^  ^i^g  j„  ^j^g 
but  in  that  of  Comfort; — a  term  that  may  susrerest  Standard   of 

y         '       .    ,  1  .   1      Comfort  raises 

a  mere  increase  of  artificial  wants,  among  which  wages  chiefly 
perhaps  the  grosser  wants  may  predominate.  It  d^J°c?^nflu-"" 
is  true  that  every  broad  improvement  in  the  ence  in  rais- 
Standard  of  Comfort  is  sure  to  bring  with  it  a  dard  of  Actlvi- 
better  manner  of  living,  and  to  open  the  way  to  *^^^- 
new  and  higher  activities ;  while  those  who  have  hitherto  had 
neither  the  necessaries  nor  the  decencies  of  life  can  hardly  fail 
to  get  some  increase  of  vitality  and  energy  from  an  increase 
of  comfort,  however  gross  and  material  the  view  which  they 
may  take  of  it.  Thus  a  rise  in  the  Standard  of  Comfort 
does  to  some  extent  involve  a  rise  in  the  Standard  of  Life; 
and  in  so  far  as  this  is  the  case  it  does  tend  to  increase  the 
National  Dividend^  and  to  improve  the  condition  of  the  people. 
Some  writers  however  of  our  own  and  of  earlier  times 
have  eone  further  than  this,  and  have  implied 

n  1  •        Limitations  of 

that  a  mere  increase  of   wants  tends   to   raise  the  influence 
wages.     But  the  only  direct  effect  of  an  increase  erteTbjTa  rise 
of  wants  is  to  make  people  more  miserable  than  in  the  stan- 
before.     And  if   we  put  aside  its  probable  in-  causing  a  di- 
direct  effect  in  increasing  activities,  and  other-  "jmished  sup- 
wise  raising  the  Standard  of  Life,  it  can  raise 
wages  only  by  another  indirect  effect,  viz.  by  diminishing  the 
supply  of  labour. 

The  doctrine  that,  merely  through  its  action  in  diminish- 
ing the  supply  of  labour,  a  rise  in  the  Standard  of  Comfort 
raises  wages,  and  is  one  of  the  most  effective  means  for  that 
purpose,  has  been  consistently  held  by  those  who  believe  that 
population  is  pressing  on  the  means  of  subsistence  so  hardly, 
that  the  rate  of  growth  of  population  exercises  a  predomi- 
nating influence  on  the  rate  of  wages.     For  if  that  be  true, 


380  BOOK  VI.   CH.  XII.   §§  10,  11. 

then  it  is  also  true  that  at  least  one  of  the  most  efficient  means 
of  raising  wages  is  to  induce  people  to  adopt  a  higher  Standard 
of  Comfort,  in  however  mean  and  sordid  a  sense  the  term 
Comfort  is  used :  since  in  order  to  indulge  the  new  desires 
rising  out  of  their  extended  desire  for  comfort  they  may 
probably  marry  late,  or  otherwise  limit  the  number  of  their 
children. 

But  this  cannot  be  maintained  by  those  who  hold,  as  most 
writers  of  the  present  generation  do,  that  the  new  facilities 
of  transport  have  much  lessened  for  the  present  the  in- 
fluence which  the  Law  of  Diminishing  Return  exercises  on 
production;  and  that  the  countervailing  influences  of  the 
Law  of  Increasing  Return  are  so  strong  that  an  increase  of 
numbers  does  not  at  present  tend  greatly  to  reduce  the 
average  income  of  the  people. 

It  is  indeed  still  possible  to  contend  that  a  mere  diminu- 
tion in  the  supply  of  manual  labourers  as  a  whole,  or  of  any 
one  class  of  them  in  particular,  will  increase  the  competition 
for  their  aid  on  the  part  of  the  higher  grades  of  labour,  and 
the  owners  of  material  capital ;  and  that  in  consequence  their 
wages  will  rise.  This  argument  is  no  doubt  valid  so  far  as  it 
goes :  but  the  rise  of  wages  that  can  be  got  by  any  class  of 
labour  simply  by  making  itself  scarce,  and  independently  of 
any  improvement  in  its  Standard  of  Activities,  is  generally  not 
very  great,  except  in  the  case  of  the  lowest  grades.  We  will 
consider  this  problem  in  some  detail  with  reference  to  that 
particular  change  in  the  Standard  of  Living  which  takes  the 
form  of  shortening  the  hours  of  labour,  and  of  wise  uses  of 
leisure. 

§  11.  The  earnings  of  a  human  being  are  commonly 
counted  gross ;  no  special  reckoning  being  made 
ness  of  exces-  for  his  wear-and-tear,  of  which  indeed  he  is  him- 
sive  wor  .  ^^^^  often  rather  careless ;  and,  on  the  whole, 
but  little  account  is  taken  of  the  evil  efiects  of  the  overwork 
of   men  on  the  well-being  of   the  next  generation,  although 


THE  INFLUENCE  OF   PROGRESS  ON   VALUE.  381 

the  hours  of  labour  of  children  are  regulated  by  law  in  their 
own  interests  and  those  of  women  in  the  interests  of  their 
families. 

When  the  hours  and  the  general  conditions  of  labour  are 
such  as  to  cause  great  wear-and-tear  of  body  or  mind  or  both, 
and  to  lead  to  a  low  standard  of  living  ;  when  there  has  been 
a  want  of  that  leisure,  rest  and  repose,  which  is  one  of  the 
necessaries  for  efficiency;  then  the  labour  has  been  extrava- 
gant from  the  point  of  view  of  society  at  large,  just  as  it 
would  be  extravagant  on  the  part  of  the  individual  capitalist 
to  keep  his  horses  or  slaves  overworked  or  underfed.  In  such 
a  case  a  moderate  diminution  of  the  hours  of  labour  would 
diminish  the  National  Dividend  only  temporarily;  for  as 
soon  as  the  improved  Standard  of  Life  had  had  time  to  have 
its  full  effect  on  the  efficiency  of  the  workers,  their  increased 
energy,  intelligence  and  force  of  character  would  enable  them 
to  do  as  much  as  before  in  less  time ;  and  thus,  even  from  the 
point  of  view  of  material  production,  there  would  be  no  more 
ultimate  loss  than  is  involved  by  sending  a  sick  worker  into 
hospital  to  get  his  strength  renovated.  And,  since  material 
wealth  exists  for  the  sake  of  man,  and  not  man  for  the  sake 
of  material  wealth,  the  fact  that  inefficient  and  stunted  human 
lives  had  been  replaced  by  more  efficient  and  fuller  lives 
would  be  a  gain  of  a  higher  order  than  any  temporary 
material  loss  that  might  have  been  occasioned  on  the  way. 
This  argument  assumes  that  the  new  rest  and  leisure  raises 
the  Standard  of  Life.  And  such  a  result  is  almost  certain  to 
follow  in  the  extreme  cases  of  overwork  which  we  have  been 
now  considering ;  for  in  them  a  mere  lessening  of  tension  is  a 
necessary  condition  for  taking  the  first  step  upwards. 

This   brings   us  to  consider  the  lowest  grade  of   honest 
workers.     Few  of   them  work  very  hard;    but  Exceptional 
they  have  little  stamina ;  and  many  of  them  are  conditions  of 

•^  .  the  lowest 

SO  overstrained  that  they  might  probably,  after  a  grade  of  work- 
time,  do  as  much  in  a  shorter  day  as  they  now  do  ^"" 


382  BOOK  VI.  CH.  XII.  §§  11 — 13. 

in  a  long  one.  Moreover  they  are  the  one  class  of  workers, 
whose  wages  might  be  raised  considerably  at  the  expense  of 
other  classes  by  a  mere  diminution  in  the  supply  of  their 
labour.  Some  of  them  indeed  are  in  occupations  that  are 
closely  pressed  by  the  competition  of  skilled  workers  using 
machinery;  and  their  wages  are  controlled  by  the  Law  of 
Substitution.  But  many  of  them  do  work  for  which  no 
substitute  can  be  found ;  they  might  raise  the  price  of  their 
labour  considerably  by  stinting  its  supply;  and  they  might 
have  been  able  to  raise  it  a  very  great  deal  in  this  way,  were 
not  any  rise  sure  to  bring  into  their  occupation  other  workers 
of  their  own  grade  from  occupations  in  which  wages  are 
controlled  by  the  Law  of  Substitution'. 

§  12.  Again  there  are  some  branches  of  industry  which 
In  some  trades  at  present  turn  to  account  expensive  plant  during 
combined  wUh  ^^^y  ^^^  hours  a  day ;  and  in  which  the  gradual 
double  shifts  introduction  of  two  shifts  of  eight  hours  would 
almost  unmix-  be  an  unmixed  gain.  The  change  would  need  to 
ed  gain.  j^g  introduced  gradually ;  for  there  is  not  enough 

skilled  labour  in  existence  to  allow  such  a  plan  to  be  adopted 
at  once  in  all  the  workshops  and  factories  for  which  it  is 
suited.  But  some  kinds  of  machinery,  when  worn  out  or 
antiquated,  might  be  replaced  on  a  smaller  scale;  and,  on 
the  other  hand,  much  new  machinery  that  cannot  be  profit- 
ably introduced  for  a  ten  hours'  day,  would  be  introduced  for 
a  sixteen  hours'  day ;  and  when  once  introduced  it  would  be 
improved  on.  Thus  the  arts  of  production  would  progress 
more  rapidly;  the  National  Dividend  would  increase;  work- 
ing men  would  be  able  to  earn  higher  wages  without  tempting 
capital  to  migrate  to  countries  where  wages  were  lower,  and 
all  classes  of  society  would  reap  benefit  from  the  change. 

The  importance  of  this  consideration  is  more  apparent 
every  year,  since  the  growing   expensiveness   of   machinery, 

1  See  end  of  Book  vi.  Ch.  iii. 


THE   INFLUENCE   OF   PBOGRESS   ON   VALUE.  383 

and  the  quickness  with  which  it  is  rendered  obsolete,  are 
constantly  increasing  the  wastefulness  of  keeping  the  untiring 
iron  and  steel  resting  in  idleness  during  sixteen  hours  out  of 
the  twenty-four.  In  any  country,  such  a  change  would 
increase  the  Net  produce,  and  therefore  the  wages  of  each 
worker;  because  much  less  than  before  would  have  to  be 
deducted  from  his  total  output  on  account  of  charges  for 
machinery,  plant,  factory-rent,  &c.  But  the  Anglo-Saxon 
artisans,  unsurpassed  in  accuracy  of  touch,  and  surpassing  all 
in  sustained  energy,  would  more  than  any  others  increase 
their  Net  produce,  if  they  would  keep  their  machinery  going 
at  its  full  speed  for  sixteen  hours  a  day,  even  though  they 
themselves  worked  only  eight. 

It  must  however  be  remembered  that  this  particular  plea 
for  a  reduction  of  the  hours  of  labour  applies  only  to  those 
trades  which  use,  or  can  use,  expensive  plant;  and  that  in 
some  cases,  as  for  instance  in  some  mines  and  branches  of 
railway  work,  the  system  of  shifts  is  already  applied  so  as  to 
keep  the  plant  almost  constantly  at  work. 

§  13.  There  remain  therefore  many  trades  in  which  a 
reduction  of  the  hours  of  labour  would  certainly  „ 

•'     But    in    many 

lessen  the  output  in  the  immediate  present,  and  trades  a  dimi- 
would  not  certainly  bring  about  at  all  quickly  hours'onabour 
any  such  increase  of  efficiency  as  would  raise  the  would  lessen 
average  work  done  per  head  up  to  the  old  level. 
In  such  cases  the  change  would  diminish  the  National  Divi- 
dend;   and  the  greater  part  of   the  resulting  material  loss 
would  fall  on  the  workers  whose  hours  of  labour  were  dimin- 
ished.   It  is  true  that  in  some  trades  a  scarcity  of  labour  would 
raise  its  price  for  a  good  long  while  at  the  expense  of  the  rest 
of  the  community.     But  as  a  rule  a  rise  in  the  real  price  of 
labour  would  cause  a  diminished  demand  for  the  product, 
partly  through  the  increased  use  of  substitutes;   and  would 
also  cause  an  inrush  of  new  labour  from  less  favoured  trades. 
This  leads  us  to  consider  the  origin  of  the  common  belief 


384  BOOK  VI.  CH.  XII.  §§  13—15. 

that  a  reduction  of  the  hours  of  labour  would  raise  wages 
generally  by  merely  making  labour  scarce,  and  independently 
of  any  effect  it  might  have  in  keeping  machinery  longer  at 
work  and  therefore  making  it  more  efficient,  or  in  preventing 
people  from  being  stunted  and  prematurely  worn  out  by 
excessive  work.  This  opinion  is  an  instance  of  those  mis- 
understandings as  to  the  ways  in  which  a  rise  in  the  Standard 
of  Comfort  can  raise  wages,  to  which  we  referred  a  little 
while  back. 

§  14.  It  appears  to  rest  on  two  fallacies.  The  first  of 
The  fallacy  these  is  that  the  immediate  and  permanent  effects 
that  a  general  Qf  ^  change  will  be  the  same.  People  see  that 
the  hours  of  when  there  are  competent  men  waiting  for  work 
cause^a^per-  outside  the  offices  of  a  tramway  company,  those 
manent  in-  already  at  work  think  more  of  keeping  their  posts 
demand  for  than  of  striving  for  a  rise  of  wages  :  and  that  if 
labour:  these  men  were  away,  the  employers  could  not 

resist  a  demand  for  higher  wages  unless  they  were  prepared 
to  stop  work  altogether.  They  dwell  on  the  fact  that  if 
tramway  men  work  very  short  hours,  more  men  must  for  the 
time  be  employed,  at  higher  wages  per  hour  and  perhaps  at 
higher  wages  per  day.  But  they  overlook  the  more  important 
fact  that  as  a  result  tramway  extensions  will  be  checked, 
there  will  be  less  demand  for  the  work  of  those  who  make 
tramway  plant ;  fewer  men  in  the  future  will  find  employment 
on  the  tramways ;  many  workpeople  and  others  will  walk  to 
work  who  might  have  ridden ;  and  many  will  live  in  closely 
packed  cities,  who  otherwise  might  have  had  pleasant  gardens 
in  the  suburbs.  If  it  were  true  that  the  aggregate  amount  of 
wages  could  be  increased  by  causing  every  person  to  work 
one  fifth  less  than  now,  then  it  could  be  increased  as  much 
by  diminishing  the  population  by  one  fifth.  Nay  more  it 
would  follow  that,  had  the  population  at  last  census  been  one 
fifth  less  than  it  was,  the  aggregate  wages  would  have  been 
actually  higher,  and  therefore  the  average  wages  more  than 


THE  INFLUENCE  OF  PROGRESS  ON  VALUE.    385 

a    fifth    higher   than    they  are   now — propositions    which    go 
beyond  the  doctrines  of  the  extremest  Malthusians. 

Thus  their  error  lies  in  assuming  that  there  is  a  fixed  Work- 
Fund,  a  certain  amount  of  work  which  has  to  be       ^   .        ^ 

and  that  there 

done,  whatever  the  price  of  labour.  On  the  isafixedWork- 
contrary,  the  demand  for  work  comes  from  the  ""  " 
National  Dividend ;  that  is,  it  comes  from  work :  the  less 
work  there  is  of  one  kind,  the  less  demand  there  is  for  work 
of  other  kinds ;  and  if  labour  were  scarce,  fewer  enterprises 
would  be  undertaken.     Again,  the  constancy  of 

1  ,  T  •  f  .         It  would  be  at 

employment  depends  on  the  organization  of  in-  least  as  likely 
dustry  and  trade,  and  on  the  success  with  which  JodiminSthe 
those  who  arrange  supply  are  able  to  forecast  inconstancy  of 
coming  movements  of  demand  and  of  price,  and  ^"^^  oy"ie"  • 
to  adjust  their  actions  accordingly.  But  this  would  not  be 
better  done  with  a  short  day's  work  than  with  a  long  one; 
and  indeed  the  adoption  of  a  short  day,  not  accompanied  by 
double  shifts,  would  discourage  the  use  of  that  expensive 
plant,  the  presence  of  which  makes  employers  very  unwilling 
to  close  their  works ;  and  it  would  therefore  probably  tend, 
not  to  lessen,  but  to  increase  the  inconstancy  of  employment. 

§  15.  The  second  fallacy  is  allied  to  the  first.  It  is  that 
all  trades  will  gain  by  the  general  adoption  of  a 
mode  of  action  which  has  been  proved  to  enable  arguing  that 
one  trade,  under  certain  conditions,  to  gain  at  Jain'^tf^^mak" 
the  expense  of  others.  It  is  undoubtedly  true  ing  their  la- 
that,  if  they  could  exclude  external  competition, 
plasterers  or  shoemakers  M^ould  have  a  fair  chance  of  raising 
their  wages  by  a  mere  diminution  of  the  amount  of  work  done 
by  each.  But  these  gains  can  be  got  only  at  the  cost  of  a 
greater  aggregate  loss  to  other  sharers  in  the  National  Divi- 
dend ^ 

It  is  a  fact — and,  so  far  as  it  goes,  an  important  fact — that 
some  of  these  shares  will  not  belong  to  the  working  classes ; 
1  See  Book  v.  Ch.  vi.  §  2,  and  Book  vi.  Cli.  ii.  §  3. 
M.  9.^ 


886  BOOK  VI.   CH.  XII.   §  1 


0. 


part  of  the  loss  will  certainly  fall  on  employers  and  capitalists 
whose  Personal  and  Material  capital  is  sunk  in  building  or 
shoemaking,  and  part  on  the  well-to-do  users  or  consumers 
of  houses  or  shoes.  But  a  part  of  the  loss  will  fall  on  the 
working  classes  as  users  or  consumers  of  houses  or  shoes ;  and 
part  of  the  loss  resulting  from  the  plasterers'  gain  will  fall  on 
bricklayers,  carpenters,  &c.,  and  a  little  of  it  on  brickmakers, 
seamen  employed  in  importing  wood  for  building,  and  others. 

If  then  all  workers  reduce  their  output  there  will  be  a 
great  loss  of  National  Dividend;  capitalists  and  employers 
may  indeed  bear  a  large  share  of  the  burden ;  but  they  are 
sure  not  to  bear  all.  For — to  say  nothing  of  the  chance  that 
they  may  emigrate  and  take  or  send  their  free  capital  for  in- 
vestment abroad — a  great  and  general  diminution  of  Earnings 
of  Management  and  of  interest  on  capital,  would  lead  on  the 
one  hand  to  some  substitution  of  the  higher  grades  of  labour 
for  the  lower  throughout  the  whole  continuous  descending 
scale  of  employment  \  and  perhaps  to  some 
ge^neS' output  falling-oflf  in  the  energy  and  assiduity  of  the 
lowers   wages  leadinof  minds  of  industry:  while,  on  the  other 

generaUy.  °  ^  ^  ' 

hand,  it  would  check  the  saving  of  capitaP.  And 
in  so  far  as  it  had  this  last  result  it  would  diminish  that 
abundance  of  capital  relatively  to  labour  which  alone  would 
enable  labour  to  throw  on  capital  a  part  of  its  share  of  the 
loss  of  the  National  Dividend  ^ 

1  See  Book  vi.  Ch.  vii.  §§  2—4. 

2  See  Book  iv.  Ch.  vii  §  6,  and  Book  vi.  Ch.  vi.  §  1. 

3  To  take  an  illustration,  let  us  suppose  that  shoemakers  and  hatters  are 
in  the  same  grade,  working  equal  hours,  and  receiving  equal  wages,  before  and 
after  a  general  reduction  in  the  hours  of  labour.  Then  both  before  and  after 
the  change,  the  hatter  could  buy,  with  a  month's  wages,  as  many  shoes  as 
were  the  Net  product  of  the  shoemaker's  work  for  a  month  (see  Book  vi. 
Ch.  II.  §  3).  If  the  shoemaker  worked  less  hours  than  before,  and  in  con- 
sequence did  less  work,  the  Net  product  of  his  labour  for  a  month  would  have 
diminished,  unless  either  by  a  system  of  working  double  shifts  the  employer 
and  his  capital  had  earned  profits  on  two  sets  of  workers,  or  his  profits  could 
be  cut  down  by  the  full  amount  of  the  diminution  in  output.  The  last 
supposition  is  inconsistent  with  what  we  know  of  the  causes  which  govern  the 


THE   INFLUENCE   OF   PROGRESS    ON   VALUE.  387 

But  we  must  be  careful  not  to  confuse  the  two  questions 
whether  a  cause  tends  to  produce  a  certain  effect 
and  whether  that  cause  is  sure  to  be  followed  by  against    crude 
that  effect.     Opening  the  sluice  of   a  reservoir  arguments 

1       T         T      «     1  .      .         ,  from  facts:  the 

tends  to  lower  the  level  of  the  water  in  it ;  but  fallacy  post 
if  meanwhile  larger  supplies  of  water  are  flowing  fg^j^f^  prop- 
in  at  the  other  end,  the  opening  of  the  sluice  may 
be  followed  by  a  rising  of  the  level  of  the  water  in  the  cistern. 
And  so  although  a  shortening  of  the  hours  of  labour  would 
tend  to  diminish  output  in  those  trades  which  are  not  already 
overworked,  and  in  which  there  is  no  room  for  double  shifts ; 
yet  it  might  very  likely  be  accompanied  by  an  increase  of 
production  arising  from  the  general  progress  of  wealth  and 
knowledge'. 

supply  of  capital  and  business  power.  And  therefore  the  hatter's  wages 
would  go  less  far  than  before  in  buying  shoes ;  and  so  all  round  for  other  trades. 

A  small  part  of  the  loss  might  be  thrown  on  rent :  but  it  is  not  necessary 
to  aUow  for  much  under  this  head.  Also  our  argument  assumed,  what  would 
be  sure  to  be  approximately  true,  that,  taken  one  with  another,  the  values 
relatively  to  shoes  of  the  things  that  the  employer  had  to  buy  remain  un- 
changed. 

1  We  must  distrust  all  attempts  to  solve  the  question,  whether  a  reduction 
of  the  hours  of  labour  reduces  production  and  wages,  by  a  simple  appeal  to 
facts.  For  whether  we  watch  the  statistics  of  wages  and  production  im- 
mediately after  the  change  or  for  a  long  period  f oUoAving  it,  the  facts  which  we 
observe  a,re  likely  to  be  due  chiefly  to  causes  other  than  that  which  we  are 
wishing  to  study.  Firstly,  the  effects  which  immediately  follow  are  likely  to 
be  misleading  for  many  reasons.  If  the  reduction  was  made  as  a  result  of  a 
successful  strike,  the  chances  are  that  the  occasion  chosen  for  the  strike  was 
one  when  the  strategical  position  of  the  workmen  was  good,  and  when  the 
general  conditions  of  trade  would  have  enabled  them  to  obtain  a  rise  of  wages 
if  there  had  been  no  change  in  the  hours  of  labour:  and  therefore  the  im- 
mediate effects  of  the  change  on  wages  are  likely  to  appear  more  favourable 
than  they  really  were.  And  again  many  employers,  having  entered  into 
contracts  which  they  are  bound  to  fulfil,  may  for  the  time  offer  higher  wages 
for  a  short  day  than  before  for  a  long  day :  but  this  is  a  result  of  the  sudden- 
ness of  the  change,  and  is  a  mere  flash  in  the  pan.  On  the  other  hand,  if  men 
have  been  overworked,  the  shortening  of  the  hours  of  labour  will  not  at  once 
make  them  strong :  the  physical  and  moral  improvement  of  the  condition  of 
the  workers,  with  its  consequent  increase  of  efficiency  and  therefore  of  wages, 
cannot  show  itself  at  once. 

And  secondly,  the  statistics  of  production  and  wages  several  years  after  the 

25—2 


388  BOOK  VI.   CH.  XII.  §  16. 

§  16.     All  this  tends  to  show  that  a  general  reduction  of 

the  hours  of  labour  is  likely  to  cause  a  little  net 
elusion  as  to  material  loss  and  much  moral  good  :  that  it  is 
the    hours    of  j^q^  adapted  for  treatment  by  a  rigid  cast-iron 

system,  and  that  the  conditions  of  each  class  of 
trades  must  be  studied  separately. 

Perhaps  £100,000,000   annually  are   spent    even    by   the 

working  classes,  and  £400,000,000  by  the  rest  of 
good^'but'oniy  ^^®  population  of  England  in  ways  that  do  little 
if  it  is  well-  qj.  nothing  towards  making  life  nobler  or  truly 

happier.  And  it  would  certainly  be  well  that 
all  should  work  less,  if  we  could  secure  that  the  new  leisure 
be  spent  well,  and  the  consequent  loss  of  material  income  be 
met  exclusively  by  the  abandonment  by  all  classes  of  the 
least  worthy  methods  of  consumption.  But  this  result  is  not 
easy  to  be  attained ;  for  human  nature  changes  slowly,  and  in 
nothing  more  slowly  than  in  the  hard  task  of  learning  to  use 
leisure  well.  In  every  age,  in  every  nation,  and  in  every  rank 
of  society,  those  who  have  known  how  to  work  well  have 
been  far  more  numerous  than  those  who  have  known  how  to 
use  leisure  well;  but  on  the  other  hand  it  is  only  through 
freedom  to  use  leisure  as  they  will  that  people  can  learn  to  use 
leisure  well:  and  it  is  true  that  no  class  of  workers  who  are 
devoid  of  leisure  can  have  much  self-respect  and  become  full 
citizens :  some  time  free  from  fatigue  and  free  from  work  are 
necessary  conditions  of  a  high  Standard  of  Life. 

A  person  can  seldom  exert  himself  to  the  utmost  for  more 


reduction  of  hours  are  likely  to  reflect  changes  in  the  prosperity  of  the  counti*y, 
or  of  the  trade  in  question,  or  of  the  methods  of  production,  or  lastly  of  the 
purchasing  power  of  money :  and  it  may  be  as  difficult  to  isolate  the  effects  of 
reduction  of  the  hours  of  labour  as  it  is  to  isolate  the  effects  on  the  waves  of  a 
noisy  sea  caused  by  throwing  a  stone  among  them. 

It  must  be  remembered  that  a  reduction  of  the  hours  of  labour  has  often 
been  a  form  and  a  good  form,  in  which  the  workers  have  chosen  to  take  out  a 
part  of  that  rise  in  real  wages  which  the  economic  changes  of  the  time  put  at 
their  command. 


THE   INFLUENCE  OF   PROGRESS   ON  VALUE.  389 

than  eight  hours  a  day  with  advantage  to  any  one;  but  he 
may  do  light  work  for  longer,  and  he  may  be 
"on  duty,"  ready  to  act  when  called  on,  for  not  over-work- 
much  longer.  And  since  adults,  whose  habits  are 
already  formed,  are  not  likely  to  adapt  themselves  quickly  to 
long  hours  of  leisure,  it  would  seem  more  conducive  to  the 
well-being  of  the  nation  as  a  whole,  to  take  measures  for 
increasing  the  material  means  of  a  noble  and  refined  life  for 
all  classes,  and  especially  the  poorest,  than  to  secure  a  sudden 
and  very  great  diminution  in  the  hours  of  labour  of  those  who 
are  not  now  weighed  down  by  their  work. 

In  this,  as  in  all  similar  cases,  it  is  the  young  whose 
faculties  and  activities  are  of  the  highest  im-  Leisure  for  the 
portance  both  to  the  moralist  and  the  economist.  y°""s- 
The  most  imperative  duty  of  this  generation  is  to  provide  for 
the  young  the  best  education  for  the  work  they  have  to  do  as 
producers  and  as  men  or  women,  together  with  long-continued 
freedom  from  mechanical  toil,  and  abundant  leisure  for  school 
and  for  such  kinds  of  play  as  strengthen  and  develop  the 
character. 

And,  even  if  we  took  account  only  of  the  injury  done  to 
the  rising  generation  by  living  in  homes  in  which  ^ 

1  ,  1        1    .       1  T  .      The  interest  of 

the  father  and  the  mother  lead  joyless  lives,  it  the  rising 
would  be  in  the  interest  of  society  to  afford  them  fh"hovu-*s  of  la- 
some  relief.  Able  workers  and  good  citizens  are  bour  of  their 
not  likely  to  come  from  homes  from  which  the 
mother  is  absent  during  the  great  part  of  the  day,  nor  from 
homes  to  which  the  father  seldom  returns  till  his  children  are 
asleep.  And  therefore  not  only  the  individuals  immediately 
concerned,  but  society  as  a  whole,  has  a  direct  interest  in  the 
curtailment  of  extravagantly  long  hours  of  duty  away  from 
home  even  for  mineral-train-guards  and  others,  whose  work 
is  not  in  itself  very  hard. 


CHAPTER  XIIL 

TRADE   UNIONS. 

§  1.  In  considering  the  recent  progress  of  the  working 
Trade  Unions  ^1^^'^^®^'^)  ^^^  little  has  yet  been  said  of  the  growth 
in  relation  to  of  Trade-unions ;  but  the  two  movements  have 
certainly  kept  pace  with  one  another;  and  there 
is  a  prinid  facie  probability  that  they  are  connected,  each 
being  at  once  partly  a  cause  and  partly  a  consequence  of  the 
other.  We  may  now  proceed  to  inquire  into  the  matter  more 
closely. 

We  have  already  noticed  ^  how  the  first  endeavours  of  the 
Early  action  of  ^^^  workmen's  associations  or  Unions  at  the 
Unions.  beginning    of    this    century    were    directed    to 

securing  the  enforcement  of  mediaeval  labour  laws.  But 
these,  no  less  than  the  ordinances  of  the  old  gilds,  were  un- 
suited  to  the  modern  age  of  mechanical  invention,  and  of 
production  on  a  large  scale  for  markets  beyond  the  seas ;  and 
early  in  this  century  the  Unions  set  themselves  to  win  the 
right  of  managing  their  own  affairs,  free  from  the  tyranny  of 
the  Combination  Laws. 

These  laws  had  made  a  crime  of  what  was  no  crime,  the 
T5        1    f  *i,     agreement  to  refuse  to  work  in  order  to  obtain 

Repeal  of  the      o 

Combination      higher  wages ;    and  "  men  who  know  that  they 

are    criminals    by  the    mere    object  which  they 

have  in  view,  care  little  for  the  additional  criminality  involved 

in  the  means  they  adopt."     They  knew  that  the  law  was  full 

1  Book  I.  Ch.  III.  §  5. 


TRADE   UNIONS.  891 

of  class  injustice:  destruction  of  life  and  property,  when  it 
was  wrought  for  the  purpose  of  enforcing  what  they  thought 
justice,  seemed  to  them  to  have  a  higher  sanction  than  that 
of  the  law;  and  their  moral  sense  became  in  a  measure 
reconciled  to  crimes  of  brutal  violence.  But  step  by  step  the 
Combination  Laws  have  been  repealed :  until  now  nothing  is 
illegal  if  done  by  a  workman,  which  would  not  be  illegal  if 
done  by  anyone  else;  nothing  is  illegal  when  done  by  a 
combination  of  workmen,  which  would  not  be  illegal  when 
done  by  a  combination  of  other  people ;  and  the  law  no  longer 
refuses  to  protect  the  property  of  the  Unions. 

With  freedom  came  responsibility.  Violence  and  the 
intimidation  of  Non-Unionists,  which  had  lost  all  excuse,  soon 
went  out  of  favour;  and  workmen  generally  chose  for  their 
leaders  able  and  far-seeing  men,  and  under  their  guidance  the 
modern  organization  of  Unions  has  been  rapidly  developed  \ 

A  modern  Union  is  generally  an  Association  of  workers 
in  the  same  or  allied  trades,  which  collects  funds  _     . , , . 

'         _  Twofold  func- 

from  all  its  members  and  applies  them  firstly  to  tions  of 
support  those  of  its  members  who  cannot  obtain 
employment  except  on  terms  which  it  is  contrary  to  the 
general  trade  policy  of  the  Union  for  them  to  accept,  and 
secondly  to  grant  certain  Provident  Benefits  to  members 
in  need.  The  policy  of  the  Unions  varies  in  detail  with 
time  and  circumstances ;  but  its  chief  aims  are  generally  the 
increase  of  wages,  the  reduction  of  the  hours  of  labour,  the 
securing  healthy,  safe  and  pleasant  conditions  of  work,  and 
the  defending  individual  workers  from  arbitrary  and  unjust 
treatment  by  their  employers.  Most  of  their  regulations  are 
framed  either  for  the  direct  attainment  of  some  of  these  aims; 
or  for  securing  conditions  of  hiring  which  will  enable  the 
employed  to  deal  as  a  body  with  their  employers,  conditions 

1  The  various  stages  through  which  the  chief  aims  and  the  plan  of 
organization  of  the  Unions  have  passed  are  explained  in  The  History  of 
Trade  Unionism  by  Sidney  and  Beatrice  Webb. 


392  BOOK  VI.   CH.  XIII.  §  2. 

which  they  regard  as  generally  needed  for  the  attainment  of 
all  their  aims. 

§  2.  A  large  Union  is  often  an  amalgamation  of  numerous 
smaller  associations,  originally  local  or  confined 
sibiHty'and  ^o  a  Subdivision  of  the  trade.  But  whatever  its 
central  origin,  nearly  every  important  Union  has  many 

branches,  each  of  which,  while  managing  its  own 
affairs  in  details,  is  bound  to  conform  to  the  general  rules  of 
the  whole  body.  These  rules  are  very  explicit;  and  in 
particular  they  prescribe  rigidly  the  ways  in  which  each 
branch  may  spend  the  funds  in  its  charge :  for  the  power  of 
the  purse  is  retained  strictly  in  the  hands  of  the  central 
body.  The  branch  dispenses  Provident  Benefits  according  to 
rule ;  but  except  on  emergency  and  for  a  short  time  it  may 
not  spend  the  corporate  funds  on  a  trade  dispute,  without  the 
sanction  of  the  central  council  or  Executive  representing  the 
whole  body,  who  are  generally  selected  from  the  branch- 
officials  that  have  deserved  best  of  their  Society. 

The  character  and  ability  of  the  branch-officials  are  tested 
in  action  as  well  as  in  speech.  For  they  have  important  business 
to  manage,  and  those  who  neglect  their  duties,  who  prove 
themselves  lax  financiers,  or  give  advice  that  is  not  justified 
by  the  event,  are  not  promoted,  however  eloquent  they  may 
be ;  and  consequently  the  Executive  of  the  best  Unions  are 
shrewd,  far-seeing  men,  resolute  but  with  great  self-control. 

It  is  these  men  whose  sanction  has  to  be  obtained  by  any 
„        ^.  branch  that  wishes  to  use  the  corporate  funds  in 

Precautions  ^  ^ 

against  unwise  a   trade   dispute.     They    come   to   the   question 
ispu  es.  with  tempers  unruffled  by  any  personal  vexations. 

Their  vanity  is  not  enlisted  in  the  continuance  of  the  struggle; 
they  can  decide  without  loss  of  prestige  that  it  is  inopportune, 
or  even  wrong  in  principle ;  and  they  have  nothing  to  gain, 
but  much  to  lose,  by  becoming  responsible  for  an  expensive 
strike  that  ultimately  fails.  The  decisions  of  the  Executive 
are  generally  binding  till  the  next   annual  general  meeting 


TRADE    UNIONS.  393 

of  the  representative  delegates  of  the  whole  body;  but  in 
certain  emergencies  a  special  meeting  of  the  delegates  is 
called,  or  a  plebiscite  of  the  whole  body  is  taken  by  voting 
papers. 

The  administration  of  the  funds  with  regard  to  Provident 
Benefits  is  more  a  matter  of  routine,  and  is  provident 
governed  strictly  by  rule.  These  Benefits  vary.  Benefits. 
The  "New"  Unions  that  have  sprung  up  in  recent  times, 
chiefly  in  unskilled  trades,  generally  regard  Provident  Funds 
as  an  encumbrance,  hindering  freedom  in  fight,  and  tending 
to  an  over-cautious  and  unenterprising  policy  in  trade 
matters.  And  the  list  of  Benefits  afforded  by  many  even 
of  the  older  Unions  is  a  meagre  one.  But  the  best  Unions 
pride  themselves  on  rendering  their  members  independent 
of  all  charitable  aid,  public  or  private,  during  any  of 
the  more  common  misfortunes  of  life.  They  provide  Sick, 
Accident,  Superannuation  and  Funeral  Benefits;  and  above 
all,  they  give  out-of-work  pay  for  a  long  (though  of  course  not 
unlimited)  time  to  any  member,  who  needs  it  through  no  fault 
of  his  own — a  Benefit  which  none  but  a  trade  Society  could 
undertake.  For  only  the  menibers  of  his  own  trade  can  judge 
whether  his  want  of  work  is  due  to  his  idleness  or  other  fault, 
and  whether  he  is  putting  too  high  an  estimate  on  the  value 
of  his  work :  and  they  alone  have  an  interest  in  supporting  him 
in  the  refusal  to  sell  his  work  for  less  than  they  think  it  is 
really  worth.  And  at  the  same  time  the  expense  of  managing 
the  whole  business  of  the  Union  is  less  than  would  be  that  of 
managing  its  Provident  business  alone  by  any  other  Society: 
for  the  local  officers  get  good  information  without  trouble, 
they  spend  nothing  on  advertising,  and  they  receive  but 
trifling  salaries  \ 

1  The  reader  is  referred  to  the  excellent  Reports  of  Mr  Burnett  to  the 
Board  of  Trade,  which  give  details  of  the  expenditure  of  all  the  chief  Unions 
for  each  successive  year  of  their  history.  It  is  instructive  to  note  that  all 
the  Benefits  increase  and  the  Funds  diminish  during  periods  of  commercial 
depression.    But  the  burden  of  Superannuation  Benefit  increases  steadily  with 


394  BOOK  VI.   CH.  XIII.  §  3. 

§  3.     Such  being  the  general  plan  of   Trade-unions,  we 
may  pass  to  examine  the  influence  which  they  can  exert  on 


We  have  already  incidentally  inquired  whether  wages  can 

-fi  •  1       ^®  raised  permanently  by  diminishing  the  supply 

scarcity  of  la-  of  labour ;  and  we  may  begin  by  recapitulating 

canVais^  ^^  ^  ^^®    results    obtained.     If   the    workers   in   any 

wages  much      trade  are  able  to  limit  artificially  the  supply  of 

if  four  con-  "^  ^^  -^ 

ditionsare  their  labour,  they  can  certainly  secure  a  con- 
satisfied,  siderable  increase  of  wages,  which  will  be  the 
greater,  the  more  fully  four  conditions  are  satisfied  ^  They 
are :  Firstly,  that  there  is  no  easy  alternative  method  of 
obtaining  the  commodity  which  their  trade  helps  to  produce ; 
and  this  generally  requires  (a)  that  they  have  control  over 
the  supply  of  labour  in  their  trade  and  district;  (6)  that  the 
commodity  cannot  easily  be  brought  from  some  other  district, 
in  which  the  conditions  of  labour  are  beyond  their  control; 
and  (c)  that  there  is  no  available  mechanical  or  other  contri- 
vance by  which  the  commodity  can  be  produced  independently 
of  them  :  Secondly,  that  the  commodity  is  one  the  price  of 
which  will  be  raised  considerably  by  a  stinting  of  supply,  or 
in  other  words  the  demand  for  it  is  not  very  elastic :  Thirdly, 
that  the  share  of  the  total  expenses  of  production  of  the 
commodity  which  consists  of  their  wages  is  small,  so  that  a 
great  proportionate  rise  in  them  will   not  greatly  raise   its 

the  lapse  of  years ;  for  the  average  age  of  the  Unionists  has  not  yet  reached 
its  maximum.  Less  than  a  tenth  of  the  total  expenditure  comes  under  the 
head  of  strike  pay  in  an  average  year's  hudget  of  the  first  class  Unions.  But 
many  of  the  differences  between  individual  workpeople  and  their  employers, 
which  result  in  their  ceasing  to  be  employed,  are  of  the  nature  of  trade 
"  disputes,"  though  not  technically  so  called.  And  some  Unions  do  not  even 
attempt  to  make  any  distinction  in  their  accounts  between  "out-of-work" 
pay  and  strike  pay :  though  the  former,  when  given  at  all,  is  at  a  lower  rate 
than  the  latter.  It  seems  however  that  not  more  than  a  fifth  of  the  total 
expenditure  can  be  ascribed  to  "disputes"  in  the  broadest  use  of  the  term. 

The  accumulated  Funds  of  the  chief  Old  Unions  average  about  two  weeks' 
wages  of  their  members. 

1  Comp.  Book  V.  Ch.  vi.  §  2. 


TRADE   UNIONS.  395 

price  and  diminish  the  demand  for  it.  And,  Fourthly,  that 
the  other  classes  of  workers,  and  the  employers,  in  the  trade 
are  squeezable,  or  at  least  are  not  in  a  position  to  secure  for 
themselves  an  increased  share  of  the  price  of  the  joint  product 
by  limiting  artificially  the  supply  of  their  labour  and  capital. 

The  effect  on  the  wages  paid  for  doing  a  given  piece  of 
work  would  be  just  the  same  whether  the  num- 
ber of  workers  in  a  trade  were  diminished  by  a  gffect^s  of 
tenth,  or  the  amount  of  work  done  by  each  were  limiting  the 

1/1  ^  •  1     •  number  of 

diminished  by  a  tenth  (other  things  being  equal)   :  workers  and 
but  on  the  latter  plan  the  same  aggregate  wages  J.^^^'J^^  '^°"^ 
would  be  divided  among  more  people,   and  the 
rate  of  wages  per  head  would  be  a  tenth  lower. 

If  the  amount  of  work  done  per  head  is  diminished  by 
lessening  the  hours  or  the  severity  of  work,  there  is  some 
compensating  gain  in  increased  leisure,  or  freedom  from  strain  : 
but  if  it  is  diminished  by  insisting  on  uneconomical  methods 
of  work,  there  is  no  such  compensation^. 

When  the  Net  Advantages  of  a  trade  are  abnormally  high 
relatively  to  others  in  the  same  grade,  there  will 
be  a  strong  drift  into  the  trade,  both  of  adult  wages^ersus 
workers  and  of  children,   by  routes  direct  and  °^^^^  ^^^ 

■  ,  .         ,  Advantages. 

indirect ;  and  this  drift  can  be  resisted  only  by 
hard  and  harsh  measures  which  interfere  much  with  the  free 
course  of  business.  Human  nature  being  what  it  is,  the  drift 
from  outside  will  be  stronger  into  a  trade  with  very  high  money 
wages  than  into  one  with  rather  high  wages,  and  considerable 
other  Net  advantages.  And  partly  for  this  reason  the  Unions 
of  the  skilled  trades  are  aiming  rather  at  the  latter  than  the 
former  end.  * 

1  Other  things  would  indeed  not  be  equal :  for  the  larger  number  of  men 
would  want  more  superintendence,  more  space,  and  more  machinery  (unless 
they  worked  double  shifts  instead  of  single) ;  and  therefore  their  aggregate 
wages  would  be  less,  and  their  wages  per  head  more  than  a  tenth  less  tlian  if 
the  supply  of  labour  were  lessened  by  a  mere  diminution  of  numbers. 

2  Comp.  Book  VI.  Ch.  xi.  §  5. 


396  BOOK  VI.  CH.  XIII.  §§  3,  4. 

The  recent  extension  of  Trade-unionism  to  unskilled 
Permanent  labour  has  been  confronted  by  the  fact  that  an 
limitations  of    artificial  restriction  of  the  numbers  in  any  un- 

the  work  done  •' 

in  all  trades  skilled  trade  is  difficult,  and  in  all  trades  to- 
wages°^^*^  gether  impossible,  unless  multitudes  are  to  be 
generally.  supported  in  idleness.     But  it  is  not  impossible 

to  make  labour  scarce  in  all  trades  by  shortening  the  hours  of 
labour  sufficiently.  The  movement  in  this  direction,  is,  as  we 
saw  in  the  last  chapter,  the  composite  product  of  a  genuine 
desire  for  more  leisure  for  its  own  sake,  and  of  a  fallacious 
belief  that  there  is  a  fixed  Work-Fund.  "We  concluded  that, 
if  there  is  a  general  diminution  in  the  amount  of  work  done, 
the  National  Dividend  will  shrink  and  the  share  of  it  that 
goes  to  the  working  classes,  or  in  other  words  the  aggregate 
of  weekly  (real)  wages  will  shrink  also,  though  not  perhaps 
quite  in  the  same  proportion.  And  since  there  would  be  no 
diminution  in  the  number  among  whom  this  aggregate  was 
divided,  average  (real)  wages  would  fall  very  nearly  in  pro- 
portion to  the  diminution  of  the  work  done. 

4.  Leaving  then  this  recapitulation  of  the  results  of 
permanently  lessening  the  supply  of  labour,  we 
tempts  to  se-  will  pass  to  the  main  task  of  this  Chapter.  That 
wages  Tor^'^ia-  ^^  ^^  inquire  whether,  by  a  judicious  use  of  the 
hour  by  threat-  threat  of  temporarily  withholding  the  supply  of 
hold  its  supply  labour,  Unions  can  force  employers,  and  through 
temporarily.  them  the  community  at  large,  to  pay  higher 
wages  temporarily.  It  is  clear  that  this  question  is  not 
decided  by  the  argument  of  the  last  Section.  For  if  two 
men  are  rowing  in  the  same  boat  and  one  pulls  all  the  time 
with  only  half  his  strength,  his  progress  will  be  slow  :  but  if 
he  thinks  the  other  is  doing  less  than  a  fair  share  of  work, 
he  may  possibly  find  it  a  good  policy  to  refuse  to  row  till  the 
other  exerts  himself  more;  he  may  conceivably  reach  his 
journey's  end  quicker  than  if  he  rowed  on  steadily  without 
demur.  Here  then  is  the  true  centre  of  this  contest  as  to  the 
efficacy  of  Unions  to  raise  wages. 


TRADE   UNIONS.  397 

We  may  start  from  the  indisputable  fact  that  the  wage  of 
labour  of  any  kind  tends,    like  the   value  of  a  ^^^^  normal 
material  commodity,  to  a  position  of  equilibrium  forces  of  sup- 
at   which  the  amount  which  will  be   normally  mand"donot 
demanded  is  equal  to  that  which   will   be  nor-  always  act 

^  ireely  on 

mally   supplied.       But   this   tendency   does    not  wages  of 
always  operate  freely  :  it  may  even  be  suspended  ^^^°"''' 
for  the  time,  if  either  the  buyers  or  the  sellers  have  no  reserve 
price  \ 

A  working  man  who  is  not  a  member  of  a  Trade-union  can 
seldom  stand  out  long  for  a  reserved  price  for  his  labour ;  and 
thus  he  may  fail  to  get  much  benefit  from  the  fact  that,  other 
things  being  equal,  it  will  be  to  the  interest  of  employers  to 
pay  wages  equal  to  the  net  value  of  his  work,  if  they  cannot 
get  a  sufficient  supply  of  labour  on  cheaper  terms. 

Take  for  instance  the  case  of  a  farmer  who  calculates  that 
the  work  of  an  additional  labourer  would  add  ^^^^  ^^  ^^^^j 
to  the  produce  of  his  farm  enough  to  repay  with  combinations 
profits  the  outlay  of  14s.  a  week  in  wages.  No  °  ^"™^  °^^^^' 
doubt  it  will  then  be  to  his  interest,  other  things  being  equal, 
to  offer  these  wages  rather  than  go  without  the  extra  assist- 
ance. But  other  things  are  very  likely  not  to  be  equal.  If 
the  current  rate  in  the  parish  is  12s.  a  week,  he  could  not  bid 
14s.  without  incurring  odium  among  his  brother  farmers,  and 
perhaps  tempting  the  labourers  already  in  his  employ  to 
demand  14s.  So  he  will  probably  offer  only  12s.,  and  com- 
plain of  the  scarcity  of  labour.  The  price  of  12s.  will  be  main- 
tained because  competition  is  not  perfectly  free ;  because  the 
labourers  have  not  much  choice  as  to  the  market  in  which 
they  sell  their  labour;  and  because  they  cannot  hold  back 
their  labour  at  a  reserve  price  equal  to  the  highest  wage  which 
the  employer  can  aiford  to  pay^ 

1  The  general  theory  bearing  on  this  point  is  indicated  in  Book  V.  Ch.  ii., 
and  is  worked  out  more  fully  in  the  corresponding  chapter  of  the  Principles. 

2  The  disadvantage  under  which  labourers  lie  in  such  a  case  as  this,  may 


398  BOOK  VI.  CH.  XIII.  §§  4,  5. 

And  even  where  employers  are  not  in  any  combination, 
tacit  or  avowed,  to  regulate  wages,  each  large 
employer  ts^a  employer  is  in  his  own  person  a  perfectly  firm 
combination  in  combination  of  employing  power.  A  combination 
of  a  thousand  workers  has  a  very  weak  and  un- 
certain force  in  comparison  with  that  of  a  single  resolute 
employer  of  a  thousand  men  :  and  though  such  an  employer 
sees  his  profits  in  hiring  a  few  more  men  at  the  current  or  even 
rather  higher  wages,  he  may  yet  think  it  the  better  policy 
not  to  bid  for  them  lest  he  should  suggest  to  those  already  in 
his  employment  that  they  should  raise  their  demands. 

be  seen  by  considering  the  position  of  a  shopkeeper  in  like  circumstances.  As 
a  rule  a  shopkeeper  fixes  the  price  of  his  goods;  and  if  the  customers  who 
come  into  his  shop  on  one  day  refuse  to  pay  that  price,  he  waits  till  others 
come  who  will  pay  it.  But  if  at  any  time  he  were  compelled  to  sell  off  his 
goods  quickly,  taking  whatever  offers  he  could  get,  and  not  holding  back  for 
any  reserve  price,  he  might  have  to  sell  them  at  much  less  than  their  real 
value,  at  all  events  if  he  had  access  to  only  a  few  buyers.  For  these  few 
might  not  happen  to  have  much  occasion  for  his  goods,  so  that  it  might  not  be 
worth  their  while  to  pay  him  a  good  price ;  and  they  might  even  combine  to 
take  advantage  of  his  necessity,  and  force  him  to  sell  at  a  lower  price  than  it 
would  have  been  worth  their  while  to  pay.  Of  course  the  fishmonger  or 
fruiterer  who  has  to  sell  off  at  very  low  prices  on  Saturday  night,  is  able  to 
recoup  himself  by  charging  high  prices  at  other  times ;  otherwise  he  would 
not  stay  in  the  trade.  But  the  labourer  is  often  wanting  in  these  means  of 
defence,  though  perhaps  not  to  as  great  an  exent  as  is  often  supposed  (See 
Book  VI.  Ch.  IV.  §  6  and  Ch.  v.  §§  1,  2 ;  or  the  corresponding  parts  of  the 
Principles). 

Thornton  in  his  book  On  Labour,  which  caused  Mill  considerably  to  modify 
his  views  as  to  the  influence  of  Trade-unions,  illustrated  the  indeterminateness 
of  equilibrium  price  in  a  small  market,  by  showing  that  in  such  a  market 
Dutch  auction  might  sometimes  yield  a  higher  price  than  English.  Mr  J.  S. 
Cree  in  his  vigorous  and  suggestive  Ciiticism  of  the  Theory  of  Trade-xmions 
has  shown  that  under  ordinary  conditions  it  is  a  disadvantage,  and  not  as 
Thornton  supposed  an  advantage,  to  have  the  initiative  even  in  a  small  market. 
But  this  does  not  impair  the  substance  of  Thornton's  main  argument ;  which 
is  that  where  there  is  little  competition,  price  is  Indeterminate  ;  and  then  those 
are  at  a  disadvantage  who  are  known  to  be  bound  to  sell  without  reserve.  It 
is  true,  as  Mr  Cree  urges,  that  the  price  would  be  even  more  indeterminate  if 
it  were  settled  between  two  combinations  of  employers  and  employed,  than  if 
employers  and  employed  bargain  freely  with  one  another :  but  in  the  former 
case  the  emi)loyed  are  not  at  the  same  disadvantage  in  bargaining  as  they 
are  in  the  latter. 


TRADE   UNIONS.  399 

In  such   cases  as  these  the   special  disadvantages  of  the 
workman  in  bargaining  certainly  put  his  wages 
for   a   time   below   the   position  at  which   they  t^"'°"ale^1ro. 
would  find  their  level  under  the  free  action  of  de-  nomic  friction 
mand  and  supply :  and  Unionists  need  not  deny  workman 
that    those    forces   are  always    at   work.      It    is  instead  of 

.  against  him. 

enough  for  their  argument  that,  whenever  these 
special  disadvantages  put  the  current  rate  of  wages  below  the 
normal  rate,  the  force  of  economic  friction  is  exerted  against 
the  workman.     And  they  contend  that  by  organization  they 
can  frequently  make  that  force  act  in  his  favour.     A  viscous 
fluid  in  a  vessel  tends  to  form  a  level  surface :   but  if  from 
time  to  time  an  artificial  force  pushes   down  the  left  side, 
which  we  may  take  to  correspond  to  wages,  it  may  reasonably 
be  maintained  that  the  average  position  of  the  left  side  is 
lower  than  it  would  have  been  without  such  interference,  in 
spite  of  the  indisputable  fact  that  the  force  of  gravitation  is 
constantly  tending  to  reinstate  the  position  of   equilibrium- 
What  Unions  claim  to  be  able  to  do,  corresponds  to  applying 
frequent  and  stronger  pressure  on  the  right-hand  side,  thus 
causing  profits  to  yield  the  higher  level  to  wages ;  so  that  the 
average  level  of  wages,  partially  sustained  by  friction  which 
will  now  act  for  them,  will  be  higher  instead  of  lower  than 
if  the  forces  of  demand  and  supply  acted  with  perfect  freedom. 
§  5.     The  chief  means  at  the  disposal  of  Unions  for  this 
purpose — putting    aside    for    the    present    the 
modern  "  boycott,"— are  threats  of  withholding  ^JJ^hilh 
for  a  time  the  labour  which  employers  need  in  Unions  apply 
order   to   turn   to   account   the   investments    of  withhold  the 
capital  (material  and  personal)  made  in  expecta-  ^^^^  °^  *** 
tion  of  getting  that  labour.     They  have  learnt 
that    this    threat    has    but    little    power    when   business   is 
slack.     But  when  the  time  has   come  for  the  trade  to  reap 
the   harv^est  for  which  it   has  been  waiting,   the   employers 
will  be  very  unwilling  to  let  it  slip ;  and  even  if  an  agree- 


400  BOOK  VI.   CH.  XIII.   §§  5 — 7. 

ment  to  resist  the  demands  of  the  men  is  made,  it  will 
not  easily  be  maintained,  especially  if  the  fruits  that  they 
might  have  gathered  are  being  snatched  up  by  rivals  outside 
of  their  combination.  Unions  further  hold  that  the  threat  of 
a  strike,  though  less  powerful  when  the  tide  of  prosperity  is 
falling  than  when  it  is  rising,  may  yet  avail  for  the  compara- 
tively easy  task  of  slackening  the  fall  in  the  high  wages  they 
have  gained.  They  claim  thus  to  secure  an  earlier  rise,  a 
greater  rise,  and  a  more  prolonged  rise  than  they  could  get 
without  combination. 

The  questions  at  issue  are  then — Can  Unions  really  make 
economic  friction  act  for  the  workman  instead  of  against  him  ? 
Are  the  means  which  they  take  for  this  purpose  injurious 
to  production  and  therefore  indirectly  to  the  workman?  If 
the  answers  to  both  these  questions  are  affirmative,  is  the 
good  on  the  whole  greater  or  less  than  the  evil  ? 

§  6.  Let  us  then  look  at  the  answers  to  these  ques- 
Rejoinderby     tions  given  by  those  who  dispute  the  power  of 

opponents  of        ^t    •  .i  /         • 

Unions.  Unions  thus  to  raise  wages. 

They  take  a  preliminary  objection  to  the  common  assump- 
tion of  Unionists  that  cases,  such  as  that  of  agri- 
obfection^to  cultural  labourers  quoted  above,  represent  the 
the  assump-  actual  condition  of  any  considerable  part  of 
tion  is  strong  England's  industries.  They  say  that  there  are 
in  the  labour  ]^^^  £g^  trades  in  which  the  employers  really  act 
in  concert,  even  though  they  undertake  to  do  so ; 
and  that  when  an  employer  sees  his  way  to  making  a  profit 
by  hiring  more  labour  at  the  current  wages  or  even  a  little 
higher,  he  generally  finds  means  of  doing  so;  and  that  he 
would  almost  invariably  do  so  were  it  not  for  the  influence  of 
Trade-unions.  For  they  insist  that  the  very  means  which 
Unions  take  to  prevent  an  employer  from  paying  individual 
workers  less  than  a  standard  rate,  make  him  often  hesitate  to 
raise  the  wages  of  individual  men,  when  he  would  do  so,  if 
free  from  the  restrictions  and  demands  of  the  Union.     Thus, 


TRADE   UNIONS.  401 

so  far  as  this  count  goes,  they  maintain  that  competition  is 
much  more  effective,  at  all  events  in  the  industrial  districts  of 
modern  England,  than  the  arguments  of  Unionists  generally 
imply ;  or,  to  revert  to  our  previous  simile,  that  the  action  of 
competition  corresponds  to  that  of  a  fluid  that  is  only  very 
slightly  viscous.  And  they  go  on  to  assert  that  that  slight 
viscosity  is  partly  due  to  the  influence  of  Unions. 

It  is  diflicult  to  decide  how  far  this  answer  is  valid. 
On  the  one  hand  it  is  in  agriculture,  where  Unions  are  weak, 
that  we  find  the  most  grounds  for  the  complaint  that  efficient 
and  inefficient  workers  are  paid  so  nearly  alike  as  to  give  but 
small  encouragement  to  energy.  But,  on  the  other  hand, 
while  this  evil  is  diminishing  in  agriculture  under  the  influence 
of  the  growing  mobility  and  independence  of  the  labourer, 
it  is  increasing  in  some  other  industries  in  which  employers 
fear  that  a  concession  to  their  best  men  will  be  followed  by 
further  demand  of  a  strong  Union  on  behalf  of  inferior  men. 
This  is  however  a  side  issue :  let  us  pass  to  the  main  issue. 

§  7.     Let  us  look  first   at  the  influence  of   strikes   and 
threats  of  strikes  in  a  single  trade.     It  is  clear 
that,    if    in   any   trade   the   employer  is   to   be  opponeifts  of 
harassed   at  all  times,   and  especially  when  he  Unionsto their 

.  .  main  claim  so 

sees  his  way  to  profitable  business,  then  business  far  as  a  single 
men  generally  will  shun  that  trade  ;  unless  indeed,  *g^ngjj*^  ^°^' 
taking  one  time  with  another,  they  are  able  to 
get  from  it  a  rate  of  profits  not  merely  as  high  as,  but  rather 
higher  than  is  to  be  got  in  other  trades.  For  the  extra  worry 
and  fatigue  of  the  work  to  be  done  will  require  some  com- 
pensation; and  until  they  get  it,  the  undertakers  will  seize 
every  convenient  opportunity  of  diminishing  the  stakes  which 
they  hold  in  the  trade.  > 

The  relative  strategic  strength  of  employer  and  employed 
may  determine  for  the  time  the  shares  in  which  the  aggregate 
net  income  of  the  trade  is  divided ;  but  the  terms  of  the 
division  will  soon  react  on  the  amount  of  capital  in  the  trade, 

M.  26 


402  BOOK  VI.  CH.  XIII.  §§  7,  8. 

and  therefore  on  the  amount  of  that  income  which  is  available 
for  division  (That  is,  the  income  is  not  a  Rent  proper  fixed  by 
external  conditions,  and  permanently  available  for  division 
among  the  parties  interested :  but  it  is  a  Quasi-rent  which 
will  be  lessened  by  every  diminution  in  the  inducements  to 
keep  up  the  supplies  of  capital  in  the  trade)  \ 

It  may  be  impossible  to  force  the  consumer  to  pay  a  price 
that  will  cover  these  charges :  in  that  case  employment  in 
the  trade  must  decline;  and  then,  in  spite  of  the  Unions, 
there  will  be  many  men  running  after  one  employer  and  wages 
will  fall. 

It  is  true  that  if  the  wares  produced  by  the  trade  have 
even  a  partial  local  monopoly  and  are  in  strong  demand,  the 
employes  may  be  able,  by  well-timed  strikes  and  threats  of 
strikes,  to  obtain  a  rise  of  wages  at  the  expense  of  the  consumer, 
and  to  retain  it  for  a  considerable  time.  But  they  cannot 
retain  long  a  much  higher  w^age  than  can  be  earned  in  similar 
and  neighbouring  trades,  except  by  permanently  limiting  the 
numbers  in  their  trade — a  case  which  we  have  already 
considered. 

Next  the  claim  of  a  Union  to  obtain  a  rise  of  wages  by 
striking  or  threatening  a  strike,  when  the  employers  are 
becoming  very  busy,  is  compared  by  opponents  of  Unions  to 
the  claim  of  those,  who  have  prematurely  shaken  down  unripe 
apples,  to  have  produced  the  apples.  They  insist  that,  as  the 
orchard  would  have  yielded  better  apples  and  with  less 
injury  to  the  trees  that  have  to  bear  next  year's  crop,  if 
nature  had  been  left  to  run  her  course ;  so  the  rise  in  wages 
that  belongs  to  a  period  of  trade  prosperity,  though  it  might 
not  have  come  so  soon  or  have  been  so  sharp,  would  have 
lasted  much  longer.  The  Unions  boast  of  resisting  the 
tendency  to  a  subsequent  fall :  but  really  that  tendency, 
it.  is  argued,  is  in  a  great  measure  of  their  own  creation ; 
and  it  need  not  have  been  felt  for  a  long  while,  if  employers 
1  Comp.  Book  V.  Ch.  v.  §  4  and  Book  VI.  Ch.  xx.  §§  G,  7. 


TRADE   UNIONS.  403 

had  been  able  to  give  their  minds  to  their  work  untroubled 
by  strikes  and  the  rumours  of  them,  and  if  plans  could  have 
been  made  far  ahead  with  confidence  that  they  could  be 
carried  out,  and  therefore  with  but  a  narrow  margin  of 
profit. 

So  far  the  rejoinder  relates  to  the  effects  of  a  Union  in 
a  single  trade  :    and  it  appears  to  have  much 

°  -^  ^  Assumption 

force,  on  the  assumption  that  the  net  effect  of  involved  in 
Trade-union    action   is    to    worry    and    fret    the  ^^^^ '■ej°i"'i^''- 
undertaker,  to  make  his  work  more  difficult  and  uncertain, 
and  thus  to  narrow  his  enterprise. 

§  8.  Leaving  this  assumption  for  discussion  later  on,  we 
may  follow  the  course  of   the   aro^ument  when 

m       1  •       •  •  1  1  11  Rejoinder  by 

irade-unionism  is  supposed  to   be  extended  to  opponents  of 
all  the  chief  trades  of  the  country.     Capital  and  ""j°"ci^°m  as 
business  power  cannot  then  take  refuge  from  the  to  wages  in 
injuries  of    Trade-unions    by  the    comparatively 
easy  means  of  drifting  into  adjoining  trades. 

But  it  is  still  true  that  a  rise  in  wages,  if  obtained  at  the 
expense  of  profits,  is  likely  to  diminish  the  accumulation  and 
to  promote  the  emigration  of  capital ;  and  that  it  may 
diminish  the  enterprise  of  business  men,  or  at  least  of  such  of 
them  as  do  not  emigrate  with  their  capital.  It  will  thus 
tend  both  to  diminish  the  National  Dividend,  which  is  the 
source  of  all  wages,  and  to  lessen  the  competition  of  capital 
for  the  aid  of  wages.  In  both  these  ways  the  rise  of  wages  is 
in  danger  of  bringing  about  its  own  destruction. 

This  old  argument  has  both  gained  and  lost  strength  in 
recent  times.  On  the  one  hand  migration  from  one  country  to 
another  is  becoming  less  difficult  both  for  capital  and  for  the 
employing  class ;  and,  if  England  should  ever  cease  to  be  an 
eminently  desirable  country  to  live  in,  a  small  fall  ^^^.^  rejoinder 
in  the  rate  of  profits  below  that  obtainable  else-  is  partly 
where  with  equal  trouble  and  worry,  would  cause  weaker  than  it 
so  great  a  lack  of  capital  and  business  power,  that  ^^s- 

26—2 


404  BOOK  VI.   CH.  XTII.  §§  8,  9. 

the  working- classes  would  be  compelled  either  to  provide  these 
requisites  of  production  for  themselves,  or  to  submit  to  such 
low  wages  that  they  would  soon  want  to  emigrate  in  pursuit 
of  the  capital  and  business  power.  But  on  the  other  hand 
every  country  has  industrial  troubles  of  its  own ;  and,  so  long 
as  Englishmen  meet  theirs  in  as  brave  and  conciliatory  a 
spirit  as  any  other  people,  the  owners  of  capital  and  business 
power  will  have  no  strong  inducement  to  seek  other  lands. 

Again,  though  the  dependence  of  industry  on  a  large 
supply  of  capital  is  constantly  increasing,  yet  the  influence 
which  the  fall  in  the  rate  of  interest  exerts  in  checking 
the  accumulation  of  capital  is  a  little  less  important  than  was 
formerly  supposed. 

And  again  though  progress  depends  ever  more  and  more 
on  the  energies  of  business  men,  and  though  some  of  them 
might  slacken  their  efforts  a  little  if  the  Earnings  of  Manage- 
ment were  lessened ;  yet  the  growth  of  wealth  and  intelligence 
are  constantly  increasing  the  numbers  of  those  who  would  do 
the  work  of  business  management  with  great  vigour  for  a 
moderate  reward,  so  long  as  they  could  retain  their  full  freedom 
and  responsibility,  and  all  the  excitements  of  the  chase. 

The  rejoinder  of  the  opponents  of  Unions  proceeds  : — If  it 
But  there  re-  ^^  Conceded  that  the  National  Dividend  would 
mains  a  power-  not  be  much  lessened  at  once  by  a  general  rise  of 
in  the^back-  wages  obtained  at  the  expense  of  profits ;  and 
ground.  ^]^g^^  labour,  getting  a  larger  share  of  a  Dividend 

but  little  diminished,  would  be  a  little  better  off  for  the  time ; 
even  then  it  has  still  to  be  considered  that  this  diminution 
would  be  progressive  and  cumulative,  unless  the  rise  in  wages 
exercises  some  compensatory  effect.  Thus  if  in  one  year  the 
diminution  of  profits  causes  the  stock  of  capital  to  be  one 
per  cent,  less  than  it  otherwise  would  have  been,  this  loss 
will  have  increased  to  about  two  per  cent,  at  the  end  of 
the  second  year,  to  about  three  per  cent,  at  the  end  of  the 
third  year,   to  about  ten  per  cent,  at  the  end  of  the  tenth 


TKADE    UNIONS.  405 

year,  and  so  on.  But  this  cannot  go  on  for  long.  For 
while  the  loss  increases  steadily  year  by  year,  there  will 
be  no  corresponding  increase  in  the  advantage  which  com- 
bination gives  to  labourers  in  their  bargaining;  and  sooner 
or  later  the  competition  of  capital  for  the  aid  of  labour 
in  production  will  be  lessened;  wages  will  fall,  and  will 
probably  go  on  falling  until  the  removal  of  the  causes  which 
lessened  the  supply  of  capital,  and  therefore  the  National 
Dividend  ^ 

It  is  then  clear  that  if  a  rise  of  wages  is  obtained  simply 
at  the  expense  of  profits,  if  it  lowers  profits  without  exerting 
any  compensatory  effect  on  the  National  Dividend,  it  must 
be  self-destructive  in  the  long  run.  It  must  lead  in  time  to 
such  a  scarcity  of  capital  and  of  business  power  that  the 
National  Dividend  will  be  insufficient  to  afford  high  wages  to 
labour,  even  while  capital  is  getting  a  low  rate  of  interest, 
and  business  power  is  receiving  low  Earnings  of  Management. 

§  9.  Thus  the  main  issue  between  those  who  do  and  those 
who  do  not  think  that  Unions  can  permanently  _.        .   . 

^  •'     The  main  issue 

raise  wages,  resolves  itself  almost  entirely  into  the  resolves  itself 

narrower  question  whether  the  latter  are  right  que°stion 

in  assuming  that  there  is  no  important  compen-  whether  Union 

ry.  ,         .    .       .  ,  .   ,  p  action  on  the 

satory  effect  to  the  injuries  which  some  lorms  whole  lessens 
of  Trade-union  action  inflict  on  production;  that  Production, 
the  net  effect  of  the  action  of  Unions  is  to  hamper  business 

1  A  fall  in  the  rate  of  interest  from  say  three  to  two  per  cent,  would  cut  off 
a  good  deal  from  the  savings  of  some  people.  But  those  of  others  would  be 
very  little  affected  by  it  (see  Book  iv.  Ch.  vii.  §  6),  and  therefore  the  percentage, 
which  this  lowering  of  the  rate  of  interest  from  three  to  two,  took  from  the 
stock  of  capital  in  successive  years  would  slightly  diminish.  In  fact  however 
this  correction  is  much  less  important  than  one  tending  in  the  opposite 
direction.  For  wages  could  not  be  kept  at  their  raised  level  without  throwing 
a  continually  increasing  burden  on  profits ;  and  therefore  the  duninution  (or 
check  to  the  growth)  of  the  National  Dividend  would  be  greater  in  the 
second  year  than  in  the  first,  greater  in  the  third  year  than  in  the  second, 
and  so  on.  Further,  a  fall  in  the  rate  of  interest  promotes  the  use  of 
machinery,  and  tends  to  increase  Auxiliary-capital  at  the  expense  of  Wage- 
capital,  and  thus  slightly  to  lower  wages. 


406  BOOK  VI.   CH.  XIII.  §§  9 — 11. 

and  lessen  production.  Let  us  then  address  ourselves  to  this 
narrower  question. 

On  the  side  of  Unions  it  is  contended :  (i)  that  the  ablest 
Unionists  recognize  the  general  solidarity  of  their  interests 
with  those  of  the  employer,  and  so  far  from  needlessly 
hindering  him  in  his  business,  do  all  that  they  can  to  make  it 
work  easily,  smoothly  and  certainly  by  every  means  that  is 
compatible  with  their  retaining  their  strategic  advantages  in 
bargaining;  and  (ii)  that  their  action  as  a  whole  tends  to 
improve  the  character  and  increase  the  efficiency  of  labour, 
that  this  influence  is  cumulative^  and  that  its  benefits  out- 
weigh any  harm  Unions  can  do  in  checking  the  growth  of 
the  material  means  of  production.  Let  us  investigate  these 
pleas. 

§  10.  Firstly  as  to  the  evils  caused  by  strikes.  Strikes 
Strikes  are  ^^'®  often  regarded  as  peculiarly  the  results  of 
generally  dis-     Trade-unionism.     But,  as  has  already  been  shown, 

couraged  by  ...  . 

the  best  the  better  organized  a  Union  is,  the  smaller  is  the 

nions.  chance  that  a  local  quarrel  will  mature  into  a 

strike.  And  though  when  a  strong  Union  does  strike,  the 
contest  is  likely  to  be  a  long  one;  yet  the  unwillingness  of 
employers  to  try  conclusions  with  it,  and  the  prudence  of 
the  officials  of  such  a  Union,  together  with  the  form  of  its 
government,  tend  to  diminish  the  number  of  strikes. 

Strikes  are  of  course  expensive.  But  too  much  attention 
The  direct  ^^^  been  paid  to  the  direct  expense  which  they 
expenses  of  cause  to  both  sides,  and  perhaps  even  to  the 
srnaiilm-  occasional  privation  which  they  occasion  to  the 

portance  families  of  the  employed.     These   evils  obtrude 

themselves  on  the  notice  of  every  one  :  and  no  doubt  they  are 
great.  But  they  are  not  great  relatively  to  the  immense  issues 
at  stake.  They  are  not  even  great  relatively  to  the  uncer- 
reiativeiy  to  tainty  and  friction  which  strikes  bring  into  busi- 
the  policy  ness.     It  is  therefore  the  general  policy  of  the 

which  they  ,  t  ,.       , 

support.  Unions,  more  than  the  direct  expenses   of   the 


TRADE   UNIONS.  407 

occasional  strikes  by  which  they  enforce  that  policy,  to  which 
we  must  turn  our  attention  \ 

§  11.  We  may  then  pass  to  that  part  of  Union  policy 
which  consists  of  fixinsr  a  minimum  (local)  rate   »  ^    ^     .  . 

°         ^  ^  '  A  fixed  mini- 

of  wage,  and  making  it  so  high  that  it  practically  mum  wage  is 
becomes  the  ordinary  rate.     Unionists  contend  "^  evn"to"the 
that  this,  while  essential  to  enable  them  to  bar-  ^^^^  dealing 
gain  as  a  body  with  the  employer,  is  not  an  un- 
mixed evil  to  him.     It  saves  him  trouble  and  anxiety  to  be 
able  to  buy  his  labour,  just  as  it  does  to  buy  his  raw  material, 
at  wholesale  prices :  for  then  he  can  be  sure  that  no  neigh- 
bouring competitor  is  buying  them  at  a  lower  price  and  thus 
preparing  to  sell  the  finished  commodity  more  cheaply  than  he 
can  afford  to.     What  public  markets  do  for  the  fair-dealing 
employer  as  regards  raw  material.  Unions  do  for  him,  it  is 
maintained,  as  regards  labour. 

But  unfortunately  this  is  not  quite  true  of  labour  when 
hired  by  time,  because  the  labour  is  not  suffi-  .,        ., 

•^  '  its    evil   arises 

ciently  graded^.  At  present,  no  doubt,  the  most  chiefly  from  the 
incompetent  people  of  all  are  excluded  from  differ  muciTIn 
Unions  by  the  rule  that  a  candidate  for  admis-  ability  and  in- 

*'  .  .  dustry, 

sion  must  prove  that  he  is  capable  of  earning  the 

local  minimum  rate  of  wages ^     But  to  begin  with,  that  is 

1  There  is  of  course  no  advantage  in  comparing  the  expense  of  any  particular 
strike  with  the  total  direct  gain  to  wages  of  any  that  follow  after  it :  partly 
because  the  events  that  follow  the  strike,  may  have  been  due  to  other  causes, 
and  partly  because  a  strike  is  a  mere  incident  in  a  campaign,  and  the  policy 
of  keeping  up  an  army  and  entering  on  a  campaign  has  to  be  judged  as  a 
whole.  The  gain  of  any  particular  battle  is  not  to  be  measured  by  the  booty 
got  in  it;  and  even  defeat  is  no  proof  that  the  General  was  wrong  in  not 
submitting  without  a  battle.  The  cost  of  strikes  is  discussed  with  full 
statistical  detail  in  Mr  Burnett's  excellent  reports  on  the  subject  to  the  Board 
of  Trade,  and  in  several  Reports  of  American  Labour  Bureaux. 

2  Compare  Book  v.  Ch.  i.  §  3. 

3  Some  weight  must  be  allowed  to  the  claim  of  the  Unions  that  young  men 
are  stimulated  to  exertions  by  knowing  that  they  must  work  up  to  this 
standard.  But  it  is  not  always  a  very  high  one ;  and,  no  doubt,  some  men, 
when  they  have  attained  it,  exert  themselves  but  little  to  get  beyond  it ;  being 
not  unwilling  to  draw  largely  on  the  out-of-work  funds  of  then-  Union. 


408  BOOK  VI.   CH.  XIII.  §§  11,  12. 

only  at  the  date  of  his  admission :  and  for  this  very  reason 
admissions  to  Unions  are  most  numerous  when  trade  is  good, 
and  when  men  rather  below  the  average  are  for  the  time 
worth  the  standard  wages.  And  further  men  vary  as  much 
in  their  willingness,  as  in  their  power,  to  exert  themselves  to 
do  a  good  day's  work  for  their  wages'. 

A  conceivable  remedy  for  this  could  be  found  by  the  classi- 
This  could  be  ^cation  of  the  workers  in  each  trade  into  several 
lessened  if  the  grades,  with  a  minimum  (local)  rate  for  each, 
ed  more  ciassi-  Of  coursB  learners  always  have  special  rates,  and 
fication ;  ^  £g^  Unions  allow  old  men  to  work  below  the 

regular  rate.  But  most  Unions  are  opposed  to  carrying  the 
classification  further  than  this  in  the  same  branch  of  work; 
partly  because  they  fear  it  might  enable  the  employer  to 
bargain  with  his  men  as  individuals  under  the  cover  of  offering 
them  work  in  a  lower  grade. 

The  difficulty  is  a  real  one ;  but  perhaps  Unionists  would 

make  greater  efforts  to  overcome  it,  if  they  realized  fully  how 

^.  ^        ,^      much  it  diminishes  the  National  Dividend,  and 

which  would  _  ' 

diminish  in-  therefore  in  the  long  run  the  average  wages 
empioymenUn  throughout  the  country.  For  even  when  trade 
the  trade  con-  is  brisk,  there  are  some  men  who  need  a  stimulus 
therefore  in  to  excrtion  closer  at  hand  than  the  fear  of  being 
others.  ^eit  out  of  employment  when  trade  declines;  and 

when  it  does  decline,  the  employers  have  to  dismiss  more 
men,  and  to  dismiss  them  earlier,  than  would  be  necessary  if 
their  wages  were  graded  according  to  their  efficiency.  The 
full  extent  of  this  evil  is  not  readily  perceived  :  for  men  look 
chiefly  at  their  own  trade;  and  they  think  that,  if  there  is 
less  done  by  one  set  of  men,  there  will  remain  more  to  be 
done  by  others.  While  some  fall  into  the  ever-recurring 
fallacy  that  there  is  a  fixed  Work-Fund,  many  forget  that  the 

1  It  is  commonly  said  by  employers  that  ordinary  men  will  do  more  than 
half  as  much  again  when  they  have  a  direct  interest  in  their  work  as  when 
they  are  paid  by  time. 


TRADE   UNIONS.  409 

demand  for  the  goods  and  services  of  each  trade  and  pro- 
fession comes  solely  from  the  products  of  other  trades  and 
professions,  and  depends  solely  upon  their  activity ;  and  that 
therefore  by  cutting  short  the  period  of  activity  of  one  trade, 
they  tend  to  throw  others  out  of  full  work  sooner  than  would 
otherwise  have  been  necessary;  that  thus  trade  depression 
spreads  and  causes  further  interruptions  of  work,  which  again 
act  and  react  on  other  trades.  In  fact,  while  the  growing 
expensiveness  of  machinery  and  the  growing  breadth  of 
markets  give  rise  to  strong  forces  constantly  tending  towards 
increased  regularity  of  employment,  the  haste  of  some  Unions 
to  put  their  minimum  rate  of  wages  a  little  too  high  for  those 
men  whom  the  employer  is  not  very  anxious  to  have  except 
in  prosperous  times,  is  one  of  the  chief  modern  hindrances  to 
settled  conditions  of  work'. 

§  12.     The  system  of  piece-work  is  seldom  found  in  the 
finest  and   best   of    industrial   relations.      The   most  careful 

1  It  should  however  be  noticed  that  many  Unions  admit  of  classification  to 
this  extent  that  the  variations  in  the  minimum  wages  demanded  by  the 
different  local  branches  are  very  great.  There  is  no  vmiversal  rule ;  but  the 
general  rule  is  that  the  minima  are  highest  in  and  near  London,  and  next 
in  the  manufacturing  districts;  and  that  they  gradually  decrease  with  the 
distance  from  any  great  centre  of  the  trade  where  a  high  standard  of  work 
is  needed  and  paid  for.  Thus  the  Amalgamated  Society  of  Carpenters  and 
Joiners  reported  in  1888  minima  of  206".  in  Penzance,  '22s.  in  Barnstaple,  25s.  in 
Taunton,  28s.  in  Bath  and  Worcester,  31s.  in  Bristol,  36s.  in  Birmingham  and 
Manchester,  and  42s.  in  some  London  suburbs. 

Where  the  wages  are  high,  the  standard  of  efficiency  which  a  man  must 
attain  in  order  to  earn  the  current  wages  of  the  district  is  high.  If  then  a 
member  of  the  Union  at  Bristol  cannot  get  31s.  a  week,  he  will  be  forbidden  to 
work  for  less  there,  but  the  Union  will  pay  the  expense  of  his  going,  say,  to 
Taunton  where  he  will  be  able  to  get  employment  at  the  current  wages.  On 
the  other  hand  an  exceptionally  able  carpenter  in  Taunton  is  likely  to  migrate 
to  Bristol  or  London  to  get  higher  wages.  By  thus  sending  inefficient  men  to 
places  where  the  standard  of  efficiency  is  low,  and  indirectly  at  least  helping 
efficient  men  to  go  to  places  where  it  is  high.  Unions  tend  to  perpetuate 
local  inequalities  of  efficiency  and  therefore  local  inequalities  of  Time-wages. 

A  proposal  is  now  under  consideration  in  some  Unions  representing  large 
trades  to  admit  a  Uttle  more  classification  even  with  regard  to  members  of  the 
same  Branch,  in  order  that  a  larger  percentage  of  workers  may  be  eUgible  for 
admission  to  the  Unions  of  their  several  trades. 


410  BOOK  VI.   CH.  XIII.   §§  12,  18. 

and  artistic   work   can   seldom   be  measured  by  it;    and   in 
,     .     many  trades,   especially  small  trades,  the  work 

Piece-work    is  -^  '         r  ^  j 

not  suited  to  all  varies  SO  much  from  bench  to  bench  and  from 
day  to  day  that  no  regular  tariff  can  be  devised; 
and  piece-work  degenerates  into  contract  work,  in  which 
the  individual  workman  has  to  bargain  alone  with  his 
employer. 

But  in  the  majority  of  trades,  the  various  tasks  can  be 
T,  .  •     .u      -.  graded  accurately:  and  when  a  list  of  prices  for 

But  in  others  it   *=  -^  '  ^  ^ 

has  great  ad-  them  is  agreed  on,  the  employes  grade  themselves, 
van  ages.  ^^^  ^^^  present  an  unbroken   phalanx  in  bar- 

gaining with  their  employers.  Piece-work  adds  to  the  wages 
of  the  industrious  workers;  and  it  checks  those  habits  of  half- 
hearted work,  which  flourish  in  every  rank  of  life  where  the  soil 
is  favourable.  In  many  trades  however  for  which  it  is  appa- 
rently well  suited  the  Unions  either  prohibit  it,  or  at  least 
avow  dislike  to  it. 

In  some  cases  this  is  caused  by  an  undue  eagerness  of 

certain  employers  to  reduce  piece  work  rates 
like  to^it°     *^    when  they  have  thought  their  men  were  taking 

too  much  money  home.  Some  workmen  oppose 
it  because  they  desire  to  take  things  easily,  and  have  perhaps 
a  latent  dislike  to  be  graded  according  to  their  merits.  And 
some  oppose  it  because  they  think  it  makes  work  scarce, 
by  inducing  men  to  get  through  more  of  it  than  they  otherwise 
would ;  and  here  again  come  in  the  combined  effects  of  a  little 
trade-selfishness,  and  the  fallacy  of  the  fixed  Work-Fund. 
Perhaps  these  imperfections  of   human   nature,  rather   than 

Unionism,  are  further  to  be  held  responsible  for 
specially  re-  whatever  ground  there  may  be  for  the  complaint 
^onsibiefor      ^j^^^^  ^^^^  Unionists  urge  their  fellows  not  to 

exert  themselves  over-much  and  absorb  work  that 
others  might  be  glad  to  do'. 

1  This  is  not  effected  by  general  regulations ;   but  in  some  workshops 
Unionist  and  Non-unionist  alike,  social  pressure  is  brought  to  bear  on  any  one 


TRADE    UNIONS.  411 

§  13.     The  old  doctrine  that  where  there  is  a  will  there  is 
a  way,  is   well  illustrated  by  the  success  with 
which   those   trades,   that  are  much  subject  to  mm:h  subje^t^^ 
the  bracing  action  of  foreign  competition,  have  to  foreign  com- 
grappled   with   the   difficulty  of   making  Union 
action  effective  on  behalf  of  the  employed,  and  yet  neither 
generally  vexatious  to  the  employer  nor  expensive  to  the  con- 
sumer.    The  trades  which  make  largely  for  foreign  markets 
are   more   uniform    in   their   methods   of    organization   than 
many  others.     They  not  only  buy  their  materials  but  they  sell 
their  products  very  much  in  open  markets ;  and  special  trade 
connections  and  trade  secrets  are,  as  a  rule,  of 
comparatively  small    importance  in    them :    and  adopt  aif 
these  conditions   have  of    course  facilitated  the  enlightened 

policy; 

minute    classification    and    grading    of    different 
tasks.     But  there  have  been  more  powerful  causes  tending  in 
the  same  direction.     For  a  quick  nemesis  has  followed  on  any 
quarrelsome  or  obstructive  tendencies  that  have  hindered  in 

who  works  so  hard  as  to  set  a  standard  of  work  higher  than  the  others  like ; 
and  no  doubt  the  presence  of  a  Union  element  may  increase  this  pressure. 
Again  a  foreman,  if  a  member  of  the  Union,  is  sometimes  apt  to  conceal  the 
faults  of  Unionists,  and  to  give  them  an  midue  preference  over  abler 
Non-unionists.  The  control  of  a  branch  of  a  Union  has  occasionally  got 
into  the  hands  of  men  who  have  used  its  machinery  to  obtain  full  wages  for 
very  little  work ;  and  though  such  cases  are  rare,  the  miscliief  which  they 
cause  is  perhaps  greater  than  that  due  to  other  kinds  of  Union  action  which 
have  attracted  a  larger  share  of  public  attention. 

There  are  general  rules  against  working  overtime ;  but  as  was  indicated  in 
the  last  Chapter,  if  moderate  in  character,  they  promote  the  efficiency  of  the 
worker,  and  are  not  injurious  to  production  in  the  long  run.  Overtime  is 
sometimes  forced  on  an  unwilling  employer  by  the  resolve  of  some  strong  and 
able  men  to  get  very  high  wages  at  any  cost.  They  are  just  the  men  on  whom 
he  can  depend  most  in  a  difficulty  ;  so  he  is  anxious  to  retain  them ;  and  their 
individual  demand  for  overtime  overrides  the  collective  opposition  of  the 
Union  to  it. 

Some  Unions  have  hard  and  selfish  rules  limiting  very  narrowly  indeed 
the  number  of  apprentices,  and  other  learners.  The  effects  of  such  limitations 
have  already  been  discussed.  But  it  should  be  added  that  in  some  cases  they 
are  prompted,  though  not  justified,  by  the  action  of  some  employers  who  get 
bad  work  done  at  low  wages  almost  exclusively  by  learners,  for  whom  they  do 
not  endeavour  to  make  any  provision  at  the  end  of  their  time. 


412  BOOK  VI.    CH.  XIII.   §  13. 

any  way,  direct  or  indirect,  the  full  efficiency  of  the  human 
energies  and  the  material  capital  invested  in  the  trade;  and 
any  injury  that  a  union  may  cause  to  the  employers,  not  being 
capable  of  being  passed  on  to  the  consumers,  acts  quickly  on 
the  supply  of  capital  in  the  trade;  and  therefore  reacts  quickly 
on  the  wages  of  the  employed. 

In  trades  that  are  largely  subject  to  foreign  competition, 
,        ,  therefore,  those  union  officials  who   most  fully 

and  employers  _  '  _         ^  >' 

and  employed  realize  the  fundamental  solidarity  between  the 
co-opera  e,  interests  of  employers  and  employed,  and  who 
oppose  all  demands  which  would  needlessly  hamper  production 
or  inflict  loss  on  the  employers,  are  those  whose  advice  is 
found  to  bear  the  test  of  experience  best :  their  influence 
generally  increases,  and  their  character  spreads  itself  over 
the  Union.  Meanwhile  similar  causes  tend  generally  to  bring 
to  the  front  those  employers  who  give  the  most  moderate 
and  prudent  counsels,  and  whose  relations  with  their  employes 
are  most  cordial. 

The  workmen  in  these  trades  were  the  first  to  welcome 
and  form  machinery,  and  to  accept  payment  by  the  piece. 

Boards  of  And  the  employers  in  these  trades  were  the  first 
to  welcome  Trade-unions,  to  enter  into  negotia- 
tions with  them,  and  to  arrange  conjointly  with  them  Boards 
of  Conciliation.  In  these  Boards  an  equal  number  of  repre- 
sentatives of  employers  and  employed  meet  on  equal  terms; 
they  discuss  now  the  minor  details  and  now  the  broader  prin- 
ciples of  wage-arrangements  with  reference  to  the  current  con- 
dition of  trade ;  and  when  they  can  agree,  as  they  generally 
can,  their  decision  is  in  effect  binding  on  the  whole  of  their 
trade  in  their  district. 

The  character  of  their  agreement  varies  with  the  nature  of 
the  trade ;  but  in  all  cases  they  aim  at  graduating  the  payment 
to  the  difficulty  of  each  particular  task,  taking  account  in  some 
cases  of  differences  in  the  character  of  the  raw  material  sup- 
plied, and  in  others  of  the  delays  caused  by  working  with 


TRADE  UNIONS.  413 

machinery  that  has  not  the  very  latest  improvements.  And 
in  some  trades  they  arrange  lists  of  the  prices  to  be  paid  for 
each  of  many  thousand  different  tasks  \ 

Arrangements  of  this  kind,  and  even  the  much  less  satis- 
factory expedient  of  occasional  appeals  to  Arbi- 
tration,  do  not  work  easily  without  the  aid  of  unions  often 
strong  organization  on  either   side.     Little   but  greatly  faciii- 

^        °  tate  business. 

mischief  indeed  comes  from  a  weak  Union,  always 
ready  to  interfere,  but  seldom  able  to  secure  the  faithful 
carrying  out  of  an  agreement,  to  which  its  own  officers  have 
been  a  party.  But  a  strong  Union,  guided  by  able  and  far- 
seeing  men  who  have  a  grave  sense  of  responsibility,  is  found 
to  enable  a  few  minutes'  quiet  conversation  to  settle  innumer- 
able petty  disputes  that  in  old  times  would  have  caused  much 
delay  and  worry  and  loss  of  mutual  good  feeling.  And,  when 
the  time  comes  for  great  changes  in  wages  either  way,  the 
case  is  argued  out  by  those  who  know  exactly  what  are  the 
real  points  of  difficulty;  and  who,  though  there  must  be  in 
the  background  an  appeal  to  force,  will  yet  have  recourse  to 

1  In  the  coal  and  iron  trades  these  payments  are  sometimes  made  to  vary 
by  a  Sliding  Scale  with  the  price  of  the  product.  The  standard  price  and  the 
standard  wage  are  usually  taken  as  those  prevailing  at  a  date  at  which  the 
condition  of  trade  is  recognized  by  both  sides  to  have  been  normal ;  and  it  is 
agreed  that  for  every  rise  or  fall  of  the  price  above  or  below  its  standard  level, 
wages  should  rise  or  fall  above  or  below  their  standard  level  by  a  corresponding 
but  generally  smaller  percentage.  The  percentage  is  generally  smaller  to 
correspond  to  the  natural  and  beneficent  tendency  of  fluctuations  of  wages  to 
be  less  in  extent  than  those  of  prices  (See  Book  vi.  Ch.  viii.  §  5).  The 
Sliding  Scale,  when  working  at  its  best,  arranges  that  those  influences  which 
short-period  fluctuations  in  the  price  of  a  commodity  are  bound  to  exercise 
on  the  current  wages  (the  Quasi-rents)  of  the  labour  by  which  they  are  made, 
shall  work  themselves  out  smoothly  and  easily.  But  the  basis  of  the  scales 
needs  to  be  changed  from  time  to  time  to  correspond  with  altered  conditions 
of  trade,  of  production,  and  of  the  labour  market  generally.  These  changes 
at  rare  intervals  give  effect  to  the  influence  which  the  supply  price  of  labour 
exercises  in  long  periods  on  the  price  of  the  commodities  raised  by  it  (See 
Book  V.  Ch.  III.  §  6,  and  Book  vi.  Ch.  vin.  §  5).  There  are  however  special 
difficulties  connected  with  Sliding  Scales,  some  of  which  arise  from  the  fact 
that  in  many  of  the  trades  to  which  they  apply,  foreign  competition  is  only 
a  partial  regulator,  and  something  approaching  a  local  monopoly  is  not  rare. 


414  BOOK  VI.   CH.  XIII.   |§  13 — 15. 

industrial  war  only  as  a  last  resource.  In  such  trades  we  may- 
conclude  confidently  that  Trade-unions  on  the  whole  facilitate 
business  \ 

§  14.  Other  trades  in  which  many  able  employers  are  not 
A  strong  Union  sorry  to  be  confronted  by  a  fairly  strong  Union, 
is  often  on  the  g^j.^   those   in   which   the  labour   is   not   hie^hly 

whole  helpful  ^     -^ 

in  a  trade  in  skilled  or  specialized ;  and  the  employers,  know- 
not'become  too  i^g  that  in  case  of  need  they  can  bring  in  fresh 
strong.  labour  from  a  distance,  have  no  fear  of  losing  the 

effective  control  of  their  own  businesses.  In  such  cases  the 
able  and  prudent  Union  leaders,  having  the  confidence  of 
their  followers,  and  being  able  to  make  practically  binding 
contracts  on  their  behalf,  may  save  more  trouble  and  worry 
to  the  employer  in  small  questions  than  they  cause  in  large 
ones ;  and  they  are  more  likely  to  hinder  than  promote  such 
aggressive  action  as  would  force  the  employer  to  extreme 
measures.  Many  of  the  firms  engaged  in  these  trades  are 
large,  and  use  much  fixed  capital;  they  buy  and  sell  every- 
thing in  large  quantities,  and  would  be  willing  to  pay  a 
little  extra  for  anything,  labour  included,  to  save  them- 
selves the  time  and  expense  of  making  many  detailed  bar- 
gains. But  while  the  employers  in  such  cases  may  welcome 
the  presence  of  a  Union  so  long  as  it  remains  of  moderate 
strength ;  their  attitude  would  quickly  be  changed  if  any 
great  measure  of  success  should  attend  the  endeavours  that 
Trade  ^ro  now  being  made  in  these  very  trades  to  revive 

Federations.  ^j^^  extend  old  projects  of  Federation  of  Unions, 
and  to  make  them  irresistible  by  the  use  of  the  modern 
weapons  of  sympathetic  strikes  and  boycotts^. 

1  In  some  trades  an  employer  having  ground  of  complaint  against  one  of 
his  employes  not  unfrequently  appeals  to  the  Union  secretary ;  and  he  having 
investigated  the  matter  compels  the  workman  to  make  good  his  default  under 
penalty  of  losing  the  support  of  the  Union. 

2  An  interesting  history  of  earlier  attempts  at  Federation  as  well  as  of 
Trade  Councils  and  Trade-union  Congresses  is  given  in  Mr  Howell's  Conflicts 
of  Capital  and  Labour,  Ch.  x.    Throughout  it  all  we  find  evidence  of  the  high 


TRADE   UNIONS.  415 

§  15.  The  disturbing  effects  of  Trade-union  action  are 
probably  seen  at  their   maximum   in   trades   which    have   a 

education  that  Unionists  are  deriving  from  all  these  various  forms  of 
association.  They  help  different  trades  to  enter  into  one  another's  difficulties; 
to  bring  to  bear  on  one  another  the  force  of  a  public  opinion,  which,  though 
often  one-sided,  is  on  the  whole  beneficial;  and  lastly  to  smooth  away  any 
quarrels  which  may  arise  between  different  trades,  especially  with  regard  to 
apparent  encroachments  by  one  on  another's  province.  For  such  quarrels  are 
as  frequent  among  modern  Unions  as  they  were  among  mediaeval  Gilds.  The 
chief  discussions  at  Trade-union  Congresses  have  however  related  to  Industrial 
Legislation ;  on  which  they  have  exerted  a  great,  and  on  the  whole  a  beneficial 
influence. 

It  is  too  early  to  form  a  sound  judgment  of  the  more  ambitious  new  schemes 
for  Federation.  Under  the  guidance  of  able  and  resolute  men  they  change  their 
shapes  rapidly  to  avoid  first  one  difficulty  and  then  another :  it  is  possible  they 
may  attain  a  power,  that  would  at  present  appear  fraught  with  some  danger 
to  the  State,  and  yet  use  that  power  with  moderation.  If  so,  they  will  do 
much  towards  changing  the  course  of  industrial  history.  For  they  aim  at 
little  less  than  controlling  the  general  conduct  of  business  in  the  interest  of 
the  workers,  just  as  much  being  allowed  to  the  employers  (that  is  to  capital 
and  business  power)  as  is  needed  to  avoid  greatly  checking  the  supply  of 
capital  and  the  activity  of  business. 

The  method  by  which  they  propose  to  attain  this  result  is  generally  to 
submit  every  dispute  to  the  supreme  Council  of  the  Federation,  who  ai'e  em- 
powered— in  some  cases  subject  to  the  explicit  consent  of  the  several  Unions 
— to  declare  war  against  the  firms  which  resist  their  decrees.  The  councU 
may,  for  instance,  order  that  the  Federated  trades  shall  not  handle  any  goods 
coming  from  or  going  to  those  firms  or  even  that  they  shall  not  work  at  all 
for  any  employer  who  refuses  to  cease  dealing  with  those  firms.  The  policy 
which  they  propose  is  one  requiring  great  judgment  and  self-control;  qualities 
that  have  not  been  shown  in  some  of  the  recent  ventures  of  such  Federations 
in  America,  Australia  and  England.    But  men  learn  by  expei-ience. 

In  some  recent  schemes  for  an  alliance  between  Co-operators  and  Trade- 
unionists  in  England,  it  has  been  proposed  that  co-operators  should  buy  no 
goods  that  did  not  bear  a  Trade-union  mark.  It  is  certain  that  at  present 
the  worst  conditions  of  labour  are  generally  found  among  those  who  are 
making  goods  for  the  consumption  of  the  working  classes  themselves;  and  it 
is  quite  right  that  they,  and  other  people,  should  as  far  as  possible  avoid 
purchasing  goods  made  under  these  conditions.  But  it  is  a  strong  measure  to 
put  it  in  the  power  of  a  Union  to  destroy  the  trade  of  an  employer  on  the 
ground  that  he  does  not  conform  to  their  requirements,  Avithout  making  sure 
that  those  requirements  are  such  as  it  is  to  the  public  interest  to  enforce. 
Errors  of  this  kind  will  however  correct  themselves  in  time.  And  meanwhile, 
together  with  some  little  harm  and  perhaps  injustice,  good  will  be  done  by 
an  attempt  that  calls  the  attention  of  the  working  classes  as  consumers 
to  the  ultimate  effect  of  a  policy,  of  which  they  are  apt  to  see  only  one  side 
A'hen  they  approach  it  as  Trade-unionists. 


416  BOOK  VI.   CH.  XIII.  §§  15,  16. 

monopoly  of  some  special  skill,  and  are  not  much  influenced  by 
the  fear  of  foreign  competition.  It  is  in  some  of 
binations  in  these  trades  that  a  bad  use  of  Trade-union  forces 
muclTsubject  ^^  most  likely  to  show  itself,  a  use  that  injures 
to  external         employers  in  the  first  instance,  but  in  the  long 

competition.  >        ^  .    n  p    \  -,         ^ 

run  IS  chiefly  at  the  expense  of  the  general  public. 
And  indeed  it  is  true  now,  as  it  was  in  the  time  of  the  old  Gilds, 
that  in  a  trade  which  has  any  sort  of  monopoly,  natural  or 
artificial,  the  interests  of  the  public  are  apt  to  be  sacrificed 
most,  when  peace  reigns  in  the  trade,  and  employers  and  em- 
ployed are  agreeing  in  a  policy,  which  makes  access  to  the  trade 
difiicult,  stints  production,  and  keeps  prices  artificially  high. 

§  16.  So  far  we  have  discussed  the  influence  of  Union 
action  on  general  wages,  with  reference  to  the  question  whether 
on  the  balance  it  renders  business  more  difficult  and  uncertain, 
diminishes  profits,  and  lessens  the  supply  of  capital  and  the 
energy  of  business  men.  But  we  have  not  yet  considered  the 
strongest  grounds  of  the  claim  made  by  Unions  that  they  do 
not  on  the  whole  lessen  the  National  Dividend,  and  thereby 
bring  into  action  forces  which  will  render  futile  their  efforts  to 
raise  wages.  We  have  still  to  consider  that  the  strongest 
But  Unionism  ^l^i"^  ^^  Unions  to  sustain  wages  depends  on  the 
must  be  judged  influence  they  exert  on  the  character  of  the 
influence^n  ^  workers  themselves ;  though  their  position  is  not 
the  character     gQ  stronfif  as  it  miejht  be  made  by  the  abandon- 

of  the  workers.  ?        ^  ^  i 

ment  of  all  regulations  and  practices  which 
needlessly  limit  the  number  of  learners  in  skilled  trades,  or 
tend  to  deprive  the  workers  of  a  good  opportunity  and  a 
strong  motive  for  exerting  their  best  abilities  to  the  full  extent 
that  is  compatible  with  a  due  amount  of  rest  and  leisure. 

It  is  true  that  Trade-unionism  has  already  done  much  of 
...         ,      .its  work  in  this  direction.     It  found  even  the 

Unions    found 

many  workers  artisan  with  but  little  independence  and  self- 
gave^ttfe^m'seif-  r^spect,  incensed  against  his  employers,  but  with 
respect.  ^^  well-considered  policy  for  compelling  them  to 


TRADE  UNIONS.  417 

treat  him  as  an  equal  who  had  something  to  sell  that  they 
wanted  to  buy.  This  state  of  things  would  in  any  case  have 
been  much  modified  by  the  increase  of  wealth  and  of  know- 
ledge ;  which,  together  with  the  cessation  of  great  wars  and 
the  opening  of  our  markets  freely  for  the  workman's  food, 
would  have  taken  away  much  of  that  want  and  fear  of  hunger 
which  depressed  the  physique  and  the  moral  character  of  the 
working  classes.  Unions  have  been  at  once  a  chief  product 
and  a  chief  cause  of  this  constant  elevation  of  the  Standard 
of  Life :  where  that  Standard  is  high,  Unions  have  sprung  up 
naturally ;  where  Unions  have  been  strong,  the  Standard  of 
Life  has  generally  risen;  and  in  England  to-day  few  skilled 
workers  are  depressed  and  oppressed  \ 

But  there  still  remain  trades  in  which  special  causes  have 
lowered   the   independence   of  the  workers  and 
induced  them  to   submit  to  conditions  of  hire  ^"f  ^^^^^  ^''^ 

stiU  a  few 

and  conditions  of  work,  which  constantly  press  trades  in  which 
them  downwards.  SelHng  their  labour  with-  ^eeded!^^'^ 
out  any  effective  reserve  to  employers  among 
whom  there  is  but  little  effective  competition,  they  have  not 
partaken  in  the  general  progress.  Relatively,  if  not  abso- 
lutely, the  price  of  their  labour  has  fallen :  and  yet  it  is  not 
always  cheap  to  the  employer;  for  long  years  and  in  some  cases 
long  generations  of  poverty  and  dependence,  without  know- 
ledge and  without  self-respect,  have  left  them  weak  and 
unprofitable  workers :  and  it  is  in  relation  to  these  classes 
that  Trade-unionism  is  doing  its  most  important  work  among 
the  present  generation  of  Englishmen. 

Its  work  has  been  successful  in  proportion  as  it  has 
resisted  the  temptation  to  go  counter  to  the  economic  forces 
of  the  time;  and  has  directed  its  chief  efforts  to  giving  men 
a  new  spirit  and  a  trust  in  and  care  for  one  another;  and 

1  Till  recently  workmen  suffered  much  hardship  and  wrong  from  some  bad 
masters.  Unions  have  checked  this  partly  by  explaining  the  law  to  the  work- 
man and  putting  it  in  force  for  him. 

M.  97 


418  BOOK  VI.  CH.  XIII.  §1  16 — 18. 

inciting  them  to  avail  themselves  of  those  economic  forces 
that  can  be  made  to  work  on  their  side.     • 

Thus  for  instance  under  the  old  regime  at  some  of  the 
,   ^  ^     London   Docks,    the    inevitable    uncertainty   of 

Labour  at  the  '      ^  •' 

Docks  under  employment  was  increased  through  lack  of  due 
t  eo    regime.  (;Qjjsi(](.j.a^JQj^ ^    jj^gj^   were   kept    waiting    about 

needlessly  for  the  chances  of  an  odd  job,  till  their  spirit 
was  gone;  they  turned  their  little  earnings  to  very  bad 
account,  and  they  were  at  once  among  the  most  miserable, 
and  the  dearest  workers  in  the  country.  A  Trade-union  giving 
them  some  confidence  in  themselves  and  their  fellows,  insisting 
on  the  removal  of  conditions  which  were  very  injurious,  and 
finally  appealing  to  public  sympathy  for  funds  which  enabled 
them  to  put  a  reserve  price  on  their  labour,  was  able 
to  give  them  a  wonderful  start :  and  though  they  have 
not  in  every  case  known  how  to  use  their  victory  with 
moderation  and  wisdom,  they  are  now  on  a  higher  level  than 
before. 

There  is  an  almost  equal  waste  of  human  life,  though  of 
„  ,         another  kind  in  some  other  industries,   such  as 

So  called  ... 

"Sweated"  nail-making,  and  hand-sewing,  in  which  old- 
fashioned  methods  vainly  struggle  for  life.  These 
are  the  industries  in  which  the  evils  of  the  so-called  sweating 
system  are  greatest,  and  the  workers  are  most  helpless.  The 
forces  of  the  time  are  moving  them  slowly  on  to  better  methods 
of  work,  and  therefore  higher  wages :  but,  if  they  could  take 
combined  action,  the  movement  would  be  hastened;  and  the 
growth  of  Trade-unions  among  them  would  be  partly  a  result 
and  partly  a  cause  of  their  rise  from  their  present  low  state 
to  a  higher  one. 

§  17.  Though  there  is  no  longer  room  for  Unionism  to 
There  is  much  render  services  of  this  order  to  skilled  workmen, 
bitttui^rnder  ^^^re  is  still  much  that  it  can  do  even  for  them. 
to  the  moral  Unions  all  Can,  and  most  of  them  in  fact  do, 
the  workers,       exercise    an    elevating    influence    by    punishing 


TRADE  UNIONS.  419 

any  member  who  conducts  himself  badly,  or  who  is  frequently 
out  of  employment  from  excessive  drinking.  There  ,is  much 
moral  strength  in  the  esprit  de  corps  that  makes  a  man  anxious 
not  to  bring  disgrace  on  his  Union,  and  in  the  just  pride 
with  which  he  contemplates  the  provision  that  its  Benefit 
and  Provident  Funds  make  to  secure  him  from  needing  the 
aid  of  public  or  private  charity. 

The  better  the  influences  which  Unions  exert  in  these 
respects  the  more  likely  is  any  increase  of  wages 
that  they  may  obtain,  to  be  turned  to  account  in  they^do^thfs^  ^* 
promoting  the  industrial  efficiency  of  the  present  t^^y  are  likely 

^  °         .  £  1  T  *°  ^^*^^  wages 

and  the  coming  generation  or  workers,  in  so  permanently, 
far  as  they  do  this,  the  Unions  have  an  effective 
answer  to  the  argument,  recently  given,  that  any  check  to  the 
growth  of  capital  caused  by  a  rise  of  wages  at  the  expense  of 
profits  is  likely  to  be  cumulative.  If  they  do  what  they  can 
to  make  labour  honest  and  hearty,  they  can  reply  that  an 
addition  to  the  wages  of  their  trade  is  as  likely  to  be  invested 
in  the  Personal  Capital  of  themselves  and  their  children,  as  an 
increase  in  profits  is  to  be  invested  in  Material  Capital :  that 
from  the  national  point  of  view  persons  are  at  least  as  re- 
munerative a  field  of  investment  as  things  :  and  that  invest- 
ments in  persons  are  cumulative  in  their  effects  from  year  to 
year  and  from  generation  to  generation  ^  But  this  answer  is 
not  open  to  those  Unions,  or  branches  of  Unions,  that  in  effect 
foster  dull  and  unenergetic  habits  of  work. 

§  18.     It  would  be  a  great  gain  if  the  net  influence  of 
Unions    on   wages   could    be   clearly   traced    in       ^ 

f.  "^  Difficulty  of 

history.     But  this  cannot  be  done.     For  many  ascertaining 
of   the   most   important   effects   of    Trade-union  un/ons"by'di!*^ 
action  are   so   remote   from   their   causes   as   to  rectobserva- 
escape  notice,  unless  they  are  carefully  sought 
out ;  and  even  then  they  are  so  intermingled  with  the  effects 

1  See  above  Ch.  iv.  §§  1,  6.    In  England,  and  to  an  even  gi-eater  extent  in 
America,  the  material  savings  of  working  men  are  themselves  considerable. 

27—2 


420  BOOK  VI.  CH.  XIII.  1 18. 

of  other  and,  in  some  cases,  more  powerful  causes,  that  their 
true  meaning  is  not  easily  read\ 

Let  us  however  consider  the  relation  of  Trade-unions  to 
some  of  the  broad  movements  of  wages  noticed 
wages  in  in  the  first  half  of  the  preceding  Chapter.     Trade- 

different  unions  have  been  stronger  in  England  than  on  the 

countries.  ■  o  o 

Continent,  and  in  America;  and  wages  have  been 
higher  in  England  than  on  the  Continent,  but  lower  than 
in  America.  Their  strength  in  England  was  partly  due  to 
that  force  of  character,  which  was  the  chief  cause  of  the 
excess  of  English  over  Continental  wages.  Their  weakness 
in  America  was  partly  due  to  the  very  causes  that  made  the 
wages  of  the  American  working  man  so  high ;  viz.  his  restless 
enterprise,  his  constant  opportunities  of  bettering  himself  by 
changing  his  abode  and  his  occupation,  and  the  abundance  of 
land  on  which  he  could  settle  as  an  independent  owner.  The 
highest  wages  of  all  that  the  world  has  known  have  been  in 
some  parts  of  California  and  Australia ;  biit  they  were  due  to 
causes  which  excluded  the  action  of  Unions.  Gradually  real 
wages  in  those  places  have  fallen — perhaps  not  absolutely,  but 
— relatively  to  the  rest  of  the  Western  world;  and  in  their 
desire  to  retard  that  fall,  men  have  betaken  themselves  to 
Unionism  of  a  specially  active  and  adventurous  character.  But 
it  is  not  easy  to  decide  whether  in  so  doing  they  have  not 
checked  the  growth  of  wages  by  retarding  the  influx  of 
capital,  as  much  as  they  have  increased  it  by  modifying  in 
their  own  favour  the  distribution  of  the  joint  product  of 
labour  and  capital.  Again,  not  long  ago  wages  were  very  low 
in  Scotland ;  but  they  have  already  risen  nearly  up  to  the 
English  level,  as  a  result  of  the  general  tendency  of  local 
inequalities  of  wages  to  diminish,  and  in  spite  of  the  fact  that 
Unions  are  weaker  in  Scotland  than  in  England.  Unionism 
is  however  growing  fast  in  Scotland ;  and  in  shipbuilding,  for 

1  Compare  the  footnote  on  pages  371 — 2. 


TRADE   UNIONS.  421 

which  the  Clyde  has  great  natural  advantages,  Unionism  is 
as  strong  and  wages  as  high  as  in  England. 

Again,  those  occupations  in  which  wages  have  risen  most 
in  England  happen  to  be  those  in  which  there 
are  no  Unions  :  they  are  those  kinds  of  domestic  wages  in 
service  and  those  employments  for  women   and  different 
children  in  which  there  has  been  a  great  increase 
of  demand,  while  the  increase  of  supply  has  been  checked  by 
the  growing  unpopularity  of  domestic  service,  and  the  unwilling- 
ness of  the  better  grades  of  working  men  to  let  their  wives 
leave  home  and  their  children  leave  school  early.     Again,  few 
of  those  branches  of  skilled  labour  which  have  had  strong 
Unions  for  the  last  fifty  years,  can  show  as  great  a  rise  in 
wages  as  has  been  secured  in  most  unskilled  occupations  in 
which  physical  strength  is  required,  even  though  they  have 
had  no  effective  Unions. 

It   is    true   that    Unions    claim   to   have  made  life  more 
pleasant  in  manufacturing  and  other  industries, 
and   thus   to   have   increased    the    inducements  ^"ference  that 

.  the  influence  of 

needed  to  keep  people  m  domestic  service.     And  Unions  on 
it  is   further  true  that,   in  so  far  as    Unionist  J^mfte^d*^ 
action  may  have  raised  the  general  level  of  life 
of  some  classes  of  workers,  it  has  helped  to  raise  the  intelligence 
and  character,  and  therefore  the  wage-earning  power  of  their 
children,  among  whom  are  many  domestic  servants.     But,  even 
if  we  take  an  optimist  estimate  of  these  influences,  such  facts 
as  those  just  quoted  prove  that  the  direct  influence  of  Unions 
on  wages  is  small  relatively  to  the  great  economic  forces  of 
the  age.     They  prove  this,  but  they  prove  no  more  than  this. 

And  on  the  other  hand  the  advocates  of  Unionism  can 
bring  forward  a  long  series  of  facts  to  prove  that  inference  that 
when  a    comparison  is  made  of   wasres    in    two  ot'?^'' things 

•^  ,  o  being  equal 

similar  trades,  or  in  two  branches  of  the  same  Unions  do 
trade,  or  in  the  same  branch  of  the  same  trade  Jhe^trlSTn'" 
in  two  places;  if  it  so  happens  that  neither  of  which  they  are 
them  is  favoured  relatively  to  the  other  by  the  others. 


422  BOOK  VI.  CH.  XIII.  §§  18,  19. 

economic  changes  of  the  age,  then  that  one  which  has  the 
stronger  Unions  has  almost  invariably  the  higher  wages ; 
and  that  one  in  which  the  strength  of  Unions  is  increasing 
most  rapidly  is  that  in  which  wages  are  rising  fastest  \ 

Such  facts  prove  that,  other  things  being  equal,  wages  in 
trades  in  which  there  are  strong  Unions  are  likely  to  be 
higher  than  in  those  in  which  there  are  not.  But  they  do  not 
afford  a  conclusive  answer  to  those  who  hold  that  a  Union  can 
obtain  a  relative  rise  in  wages  in  its  trade  only  by  means  which 
indirectly  cause  a  greater  loss  in  other  trades;  and  that 
therefore  the  effect  of  Unionism  is  to  lower  general  wages. 

It  should  also  be  noted  that  all  such  facts  lose  some  of 
their  significance,  when  it  is  remembered  that  a  rise  of  wages, 
even  when  caused  by  a  general  increase  in  the  prosperity  of  a 
trade,   is  nearly   always  followed,    as   statistics   show,   by   an 

1  There  are  several  cases  of  trades  witli  strong  Uuious,  in  which  the  rise  of 
wages  has  been  retarded  by  causes  which  may  easily  escape  observation.  For 
instance,  the  rise  of  the  wages  of  compositors  has  been  hindered  by  the 
diffusion  of  education  which,  while  it  much  increases  the  demand  for  their  work, 
prevents  the  power  of  reading  and  writing  from  having  any  longer  a  monopoly 
value:  their  wages  have  however  risen  relatively  to  the  incomes  of  clerks 
who  are  affected  by  the  same  cause  but  have  no  Union.  Again,  skilled  iron- 
founders  were  heavily  struck  by  the  invention  of  machinery,  the  use  of 
which  required  mere  physical  strength,  and  enabled  many  navvies  to  earn 
10.S-.  a  day  at  iron-founding  at  the  very  time  when  the  Unemployed  List  of 
the  Ironfounders'  Union  was  quoted  before  the  Commission  on  the  Depression 
of  Trade,  as  strong  evidence  of  a  growing  dearth  of  employment.  And  again, 
the  engineers  have  suffered,  nominally  at  least,  from  the  fact  that — to  say 
nothing  of  those  who  are  below  the  Union  standard — there  is  a  constant 
increase  in  the  number  of  men  who  confine  themselves  to  comparatively 
simple  work  in  the  management  of  machines,  and  are  not  highly  skilled  all- 
round  men.  The  average  incomes  to-day  of  those  who  entered  the  engineers' 
trade  thirty  years  ago  are  very  high  indeed.  Not  a  few  are  employers, 
many  more  are  foremen  and  in  positions  of  trust  in  all  kinds  of  industries ; 
and  many  are  earning  exceptionally  high  wages  for  delicate  and  varied  work 
in  small,  but  high  class  businesses.  A  great  many  of  these  however  are  not 
members  of  the  Union  at  all;  and  those  who  are,  owe  very  little  at  present 
(whatever  they  may  have  done  in  the  past)  to  the  aid  of  the  Union. 

All  these  three  trades  have  to  do  with  branches  of  production  for  which 
the  demand  is  increasing  much  faster  than  in  proportion  to  the  population. 
They  all  have  very  strong  and  well-managed  Unions;  and  yet  all  have  to 
contend  with  strong  and  not  very  obvious  hindrances  to  a  rapid  rise  in  their 
minimum  wage. 


TRADE  UNIONS.  428 

increase  in  the  strength  of  the  Union.  For  the  rise,  however 
caused,  increases  the  men's  confidence  in  their  leaders,  and 
makes  them  more  willing  as  well  as  more  able  to  pay  their 
entrance  fees  and  subscriptions ;  and  further  it  increases  the 
numbers  of  those  who  are  qualified  for  admission  by  earning 
the  standard  wages. 

§  19.     The  direct  evidence  of   wage  statistics  is  then  in- 
conclusive.    But,    on   the   whole,   they   tend   to    Qgngj.j^j 
confirm   the   conclusions   to   which   our    general    conclusions, 
reasonings  seemed  to  point ;    and  we  may  now 
sum  them  up. 

In  trades  which  have  any  sort  of  monopoly  the  workers,  by 
limiting  their  numbers,  may  secure  very  high  wages  at  the  ex- 
pense partly  of  the  employers,  but  chiefly  of  the  general  com- 
munity. But  such  action  generally  diminishes  the  number  of 
skilled  workers  and  in  this  and  other  ways  takes  more  in  the  ag- 
gregate from  the  real  wages  of  workers  outside,  than  it  adds  to 
those  of  workers  inside :  and  thus  on  the  balance  it  lowers  average 
wages.  Passing  from  selfish  and  exclusive  action  of  this  sort,  we 
find  that  Unions  generally  can  so  arrange  their  bargaining  with 
employers  as  to  remove  the  special  disadvantages 
under  which  workmen  would  lie  if  bargaining  as  unions  on 
individuals   and    without   reserve ;    and   in  con-  wages  in  par- 

.  ticular  trades. 

sequence  employers  may  sometimes  find  the  path 
of  least  resistance  in  paying  somewhat  higher  wages  than 
they  would  otherwise  have  done.  In  trades  which  use  much 
fixed  capital  a  strong  Union  may  for  a  time  divert  a  great 
part  of  the  aggregate  net  income  (which  is  really  a  Quasi-rent) 
to  the  workers ;  but  this  injury  to  capital  will  be  partly  trans- 
mitted to  consumers ;  and  partly,  by  its  rebound,  reduce  em- 
ployment and  lower  wages.  Some  of  those,  who  have  caused 
this  result,  may  escape  it  themselves  by  changing  their  oc- 
cupation or  their  abode.  But  in  trades  in  which  competition 
from  a  distance  is  effective,  the  nemesis  follows  quickly :  and,  in 
these  trades  more  than  others,  Unions  direct  their  energies  to 


424  BOOK  VI.   CH.  XIII.   §  19. 

maintaining  a  moderate  level  of  wages  by  means  that  do  not 
hamper  production.  Other  things  being  equal,  the  presence 
of  a  Union  in  a  trade  raises  wages  relatively  to  other  trades. 

But  the  influence  which  Unions  exert  on  the  average  level 
influen  e  of  ^^  wages  is  less  than  would  be  inferred  by  look- 
Union  action  ing  at  the  influence  which  they  exert  on  wages 
general!^  Its  ^^  each  particular  trade.  When  the  measures 
drawbacks  and  which  they  take  to  raise  wages  in  one  trade  have 
the  effect  of  rendering  business  more  diflicult,  or 
anxious,  or  impeding  it  in  any  other  way ;  they  are  likely  to 
diminish  employment  in  other  trades,  and  thus  to  cause  a  greater 
aggregate  loss  of  wages  to  other  trades  than  they  gain  for 
themselves,  and  to  lower  and  not  raise,  the  average  level  of 
wages.  For  a  fall  in  the  rate  of  profits  exerts  an  influence  that 
is  real,  though  less  than  used  to  be  once  supposed,  in  causing 
capital  to  emigrate  or  even  to  be  consumed,  and  in  causing  men 
of  business  ability  to  emigrate  or  slacken  their  energies ;  and 
this  influence  is  cumulative. 

The  power  of  Unions  to  raise  general  wages  by  direct 
means  is  never  great ;  it  is  never  sufiicient  to  contend  success- 
fully with  the  general  economic  forces  of  the  age,  when  their 
drift  is  against  a  rise  of  wages.  But  yet  it  is  sufiicient 
materially  to  benefit  the  worker,  when  it  is  so  directed  as  to 
co-operate  with  and  to  strengthen  those  general  agencies,  which 
are  tending  to  improve  his  position  morally  and  economically. 
And  it  will  be  so  directed  if  the  following  conditions  are 
Conditions  Satisfied.  Firstly,  Unions  must  aim  at  making 
under  which  business  easy  and  certain :  this  is  already  done  by 
permanently  formal  and  informal  Boards  of  Conciliation  in 
raise  general  some  trades,  especially  such  as  produce  largely 
for  foreign  markets.  Secondly,  they  must  aim  at 
raising  the  Standard  of  Life  among  the  workers  of  the  present 
and  the  coming  generation  by  fostering  habits  of  sobriety  and 
honesty,  independence  and  self-respect :  this  is  done  in 
different  degrees  by  all  Unions ;  and  whatever  influence  they 


TRADE  UNIONS.  425 

exert  in  this  direction  is  cumulative.  Thirdly,  they  must  aid 
as  many  as  possible  of  the  rising  generation  to  acquire  industrial 
skill,  and  to  join  the  higher  paid  ranks  of  labour :  this  calls 
for  some  self-sacrifice,  and  is  inconsistent  with  any  attempt  to 
raise  very  high  the  wages  in  skilled  trades  by  making  the 
entrance  to  them  artificially  difiicult.  Fourthly,  they  must 
strive  to  develop  the  great  stores  of  business  power  and  in- 
ventive resource  that  lie  latent  among  the  working  classes,  so 
that,  production  being  economical  and  efficient,  the  National 
Dividend  may  be  large ;  and  that,  business  power  being  cheap, 
and  the  share  going  as  Earnings  of  Management  being 
relatively  small,  that  which  remains  for  wages  may  be  high. 
The  training  which  Unionists  get  from  the  management  of 
Union  affairs,  though  highly  beneficial  to  them  as  men 
and  as  citizens,  is  yet  not  exactly  what  is  wanted  for  this 
end.  But  Unions  might  do  much  towards  it,  by  under- 
taking particular  contracts  and  even  general  business  on 
their  own  accounts;  and  by  aiding  and  promoting  all  forms 
of  co-operative  enterprise,  and  especially  such  as  open  the 
greatest  number  of  opportunities  to  men  of  natural  business 
ability  to  find  free  scope  for  their  constructive  and  originating 
faculties  \  Fifthly,  they  must  be  always  specially  careful  to 
avoid  action  by  which  one  class  of  workers  inflict  a  direct 
injury  on  others.  Contests  between  Unions  contending  for  the 
same  field  of  employment — as  for  instance  between  Unions  of 


1  Thus  sacrificing  the  shadow  for  the  substance,  they  should  where 
necessary,  relax  the  rigid  forms  of  some  of  their  own  rules  in  favour  of  small 
genuine  co-operative  productive  societies  in  the  few  trades  in  which  such 
societies  can  successfully  contend  with  the  great  natural  difficulties  by  which 
they  are  opposed.  And  in  particular  they  should  encourage  productive 
branches  of  distributive  stores  in  which  responsibility  for  risks  and  power  of 
experiment  are  very  nearly  in  the  same  hands;  and  in  which  the  business 
energies  of  men  of  the  working  class  can  be  vivified  and  prepared  for  taking 
an  important  part  in  increasing  the  National  Dividend  and  diminishing  the 
share  of  it  which  goes  as  Earnings  of  Management.  (Some  aspects  of  this 
question  are  further  considered  in  an  address  by  the  present  wnriter  to  the 
Co-operative  Congress  in  1889.) 


426  BOOK  VI.  CH.  XIII.  §§  19,  20. 

shipwrights  and  carpenters,  or  plumbers  and  fitters — attract 
their  full  meed  of  attention ;  but  more  importance  really 
attaches  to  the  injuries  which  one  trade  inflicts  on  others  by- 
stinting  tlie  output  of  the  raw  material  which  they  have  to 
use,  or  by  throwing  them  out  of  work  through  a  strike  in 
which  they  have  no  concern. 

§  20.     As  Mill  says :   "  Except  on  matters  of  mere  detail, 
-  .  there   are   perhaps  no  practical  questions  even 

between  the       among   tliose    which    approach    nearest    to    the 

moral  and  the        ^  ,  p  •  ■  •  i  •   i        i      -j 

economic  character  or  pure  economic  questions  which  admit 

aspects  of  the  of  being  decided  on  economic  premises  alone;" 
and  it  is  alike  unscientific  and  injurious  to  the 
public  welfare  to  attempt  to  discuss  men's  conduct  in  industrial 
conflicts  without  taking  account  of  other  motives  beside  the 
desire  for  pecuniary  gain.  The  world  is  not  ready  to  apply  in 
practice  principles  of  so  lofty  a  morality,  as  that  implied  in 
many  socialistic  schemes,  which  assumes  that  no  one  will 
desire  to  gain  at  the  expense  of  an  equal  loss  of  happiness  to 
others.  But  it  is  ready,  and  working  men  among  others  are 
ready,  to  endeavour  to  act  up  to  the  principle,  that  no  one 
should  desire  a  gain  which  would  involve  a  very  much  greater 
loss  of  happiness  to  others.  Of  course  the  loss  of  £1  involves 
much  less  loss  of  happiness  to  a  rich  man  than  to  a  poor  man. 
And  it  would  not  be  reasonable  to  ask  working-men  to  abstain 
from  a  measure  which  would  give  them  a  net  gain  of  <£1  at 
the  expense  of  a  loss  of  30s.  to  profits,  unless  it  could  be  shown 
that  this  loss  would  react  on  wages  in  the  long  run.  But 
many  of  them  are  willing  to  admit  that  no  Union  should  adopt 
a  course  which  will  raise  its  own  wages  at  the  expense  of  a 
much  greater  total  loss  of  wages  to  others;  and  if  this  principle 
be  generally  adopted  as  a  basis  of  action,  then  nearly  all  the 
evil  that  still  remains  in  the  policy  of  Unions  can  be  removed 
by  such  a  study  of  economic  science,  as  will  enable  them  to 
discern  those  remote  -  effects  of  their  action  "which  are  not 
seen,"  as  well  as  those  immediate  results  "  which  are  seen." 


TRADE   UNIONS.  427 

Thus  Union  policy  as  a  whole  is  likely  to  be  economically 
successful  provided  Unionists  as  individuals  and  _, 

^  ^  _  Power  and  re- 

in their  corporate  capacity  follow  the  dictates  of  sponsibiiity  of 
morality  directed  by  sound  knowledge.  In  this  ^"  ic  opinion, 
respect  Unions  derive  an  ever-increasing  assistance  from  public 
sympathy  and  public  criticism ;  and  the  more  they  extend  the 
sphere  of  their  undertakings  by  Federation  and  International 
alliances,  the  more  dependent  do  they  become  on  that  sym- 
pathy and  the  more  amenable  to  that  criticism ;  the  larger 
the  questions  at  issue,  the  greater  is  the  force  of  public 
opinion.  Public  opinion,  based  on  sound  economics  and  just 
morality,  will,  it  may  be  hoped,  become  ever  more  and  more 
the  arbiter  of  the  conditions  of  industry  \ 

1  The  strength  and  the  responsibihty  of  pubHc  opinion  as  regard  the  modern 
developments  of  trade  combinations  of  all  kinds  are  discussed  in  an  address 
by  the  present  writer  to  the  Economic  Section  of  the  British  Association, 
which  is  republished  in  the  ^Statistical  Journal  for  Dec.  1890.  And  something 
further  is  said  on  the  meaning  of  the  phrase  "a  fair  rate  of  wages"  with 
special  reference  to  Conciliation  and  Arbitration  in  an  Introduction  by  hun  to 
Mr  L.  L.  Price's  Industrial  Peace,  a  book  which,  supplemented  by  Prof. 
Munro's  papers  on  Slidinf/  Scales,  throws  much  light  on  an  imiiortant  class  of 
problems.  The  general  history  of  Unions  is  told  in  the  writings  of  Mr  Howell 
and  Mr  Buniett,  already  mentioned,  and  in  those  of  Prof.  Brentano,  also  in 
the  Reports  of  a  Committee  of  the  National  Association  for  Promoting  Social 
Science  in  1860,  and  of  the  Royal  Commission  on  Trades  Unions  in  1866 — 9. 
A  great  deal  of  information  bearing  on  these  and  other  questions  discussed  in 
this  Chapter  is  being  published  (1892)  by  the  Commission  on  Labour. 

Among  the  many  aspects  of  Unionism  with  which  it  has  not  been  possible 
to  deal  at  present  are  the  subtler  and  more  indirect  influences  of  foreign 
competition ;  and  the  claim  of  Unions  to  aid,  or  sometimes  even  to  cohipel  the 
action  of  employers  in  liegidatiny  Trade.  No  doubt  there  are  occasions  on 
which  a  trade  caimot  continue  to  produce  at  its  full  strength  without  forcing 
the  sales  of  its  wares  on  an  inelastic  market  at  prices  disastrous  to  itself.  But 
since  every  check  to  the  production  of  one  trade  tends  to  throw  others  out  of 
employment,  what  is  called  the  Regulation  of  trade  often  tends  to  increase 
instability  of  prices,  of  wages  and  of  employment  in  some  directions  more  than 
it  diminishes  them  in  others ;  and  its  general  adoption  would  probably 
increase  the  uncertainties  of  trade  and  of  work.  If  we  assume  however  that 
it  is  reasonable  for  those  in  a  trade  to  try  to  regulate  it,  it  seems  to  follow 
that  the  employed  should  have  their  say  m  the  matter;  and  some  slight 
weight  must  be  conceded  to  that  objection  to  Sliding  Scales,  which  urges  that 
under  them  wages  are  reduced  when  the  employers  accept  lower  prices, 
without  the  workers  being  consulted  as  to  whether  they  would  prefer  to 
produce  less,  so  that  higher  prices  could  be  got  and  higher  wages  paid. 


INDEX. 


Words  printed  in  Italics  are  technical  terms;  and  the  numbers  immediately 
/olloiving  them  are  those  of  the  imges  on  ichich  they  are  defined. 


Abstinence  162  (see  Waiting) 

Action  of  a  laio  47 

Activities  in  relation  to  vmnts  79 — 80, 

378—380 
Agents  of  ijroduction,  classification 

of  107 
Afjricultural  Improvements  333  n. 
A-riculture  111—127,   187;   English 

system  of  338 — 42 
Allotments  343 
Amotint  Index  226  n. 
Apprenticeships  150,  300,  411  n. 
Arbitration  413 
Aristotle  3 
Art  education  151  n. 
Auxiliary  Cajntal  69 

Babbage  175 

Bagehot  31 

Banfield  80  n. 

Barter  216,  218  n. 

Bentham  29  n.,  101  n. 

Biology  and  Economics  31,  46,  165 

Bohm-Bawerk  311  n. 

Boycott  399,  414—15 

Brentano  427  n. 

Burnett  393  n.,  407  n.,  427  n. 

Business  Management  (see  Contents, 
Book  IV.  Chs.  XI.,  XII.  and  Book  vi. 
Chs.  VII.,  VIII.  See  also  Manage- 
ment, Earnings  of) 

Cairnes  31,  85  n. 

Capital,  definitions  of  67 — 72;  stan- 
dard use  of  term  68;  growth  of 
153—164,  276—7;  adjustment  of 
to  business  ability  202—3,  406—8 ; 
demand  for  in  a  trade  367 — 9;  in 
relation  to  wages  in  general  282 — 
4;  industry  is  limited  by  286 


Carey  125,  253  n. 

Carlyle  37—8 

Character,  influence  of  work  on  1; 

influence  of  poverty  on  1 — 2 
Child,  Sir  Josiah  162 
Christianity,  influence  of  11 
Circidating  Cajntal  69 
Classification,  principles  of  60 
Cliffe  Leslie  31 
Climate,  influence  of  l!) 
Coke  123 
Collective  goods  hd ;  property  40;  use 

of  wealth  105 
Competition,  fundamental  character- 
istics of  5 — 8,  281 — 2 ;  its  tendency 

to  apportion  wages  to  efficiency  289 ; 

Law  of  Substitution  a  form  of  281 
Composite  demand  247 ;  supiily  249 
Comte  33  n. 
Conciliation  357,  380 
Constant  Return  206 
Consumer  s  Rent  98 ;  analysis  of  98 — 

103;  how  affected  by  monopolies 

255—7 
Consumption  61;    ethical  asjiects  of 

103—6;  of  different  grades  89 
Consumption  goods  62 ;  Cajntal  69 
Conventional  necessaries  65 
Co-operation    321,    344,    357,    414— 

415  n.,  425  n. 
GosmopoUian  wealth  60  n. 
Cost  of  marketing  (sec  Marketing) 
Cost  of  production  220;   its  relation 

to  utility  and  to  value  227,  347—8 
Cost  of  Eeproduction  253  n. 
Cournot  101  n. 
Cree  398  n. 
Cumtdative   effects   with    regard    to 

labour  296 
Custom  10,  296  n. 


INDEX. 


429 


Darwin  165 

Deduction  and  induction  42 — 5 

Definition  54 — 5 

Demand,  Elasticity  o/ 88—92;  Laio 

o/86;   element  of  time  in  92 — 3; 

tncrease  of  83 — 5;  of  rich  and  poor 

88 — 90;  for  necessaries  91;  joint 

244;   derived  244;   composite^  247; 

curve  84  n. ;  point  84  n. ;  price  82 

(see  Contents,  Book  iii.) 
Demand  Schedide  84 ;  raising  of  85 
Depression  of  trade  360 — 1 
Derived  Demand  244 
Dijf'erentiaiion  165 — 6 
Diminishing  Return,  Laio  o/(see  Law) 
Discommodity  108 
Discounted  value  96 
Discounting    future    pleasures    and 

pleasurable  events  96 
Distribution  of  means  between  wants 
.  according  to  marginal  utilities  94; 

of  a  commodity  between  different 

uses  94 — 7 
Division  of  labour  168—176 
Domestic  industry  189 — 90 

servants  303  n.,  421 
Dose  119 

Dose  of  Capital  and  Labour  119  n. 
Dupuit  101  n. 

Earnings,  early  theories  of  258 — 60; 
in  relation  to  efficiency  261^2, 
272—5,  304,  361,  381;  their  rela- 
tion to  supply  of  labour  153 — 4, 
272 — 5;  general  rate  of  275  n., 
282 — 4 ;  time  288 ;  piece-ioorh  288 ; 
tasTc  289;  efficiency  288;  real  and 
nominal  291 ;  effect  of  progress  on 
369—377  (see  Contents,  Book  vi. 
Chs.i.— V.) 

Earnings  of  Management  73;  (see 
Management) 

Earnings  of  Undertaking  73 

Economic  Freedom  8;  growth  of  10 
—25 

Economic  Lato  45 — 8 

'  Economic  man '  41 

Economic  method  42 — 8  (see  Contents, 
Book  I.  Ch.  V. — VII.) 

Economic  motives  33 — 40;  not  ex- 
clusively selfish  38—40,  159,  298; 
generally  measurable  34r — 7 

Economics,  provisional  definition  1; 
a  modem  science  4 — 5 ;  growth  of 
26 — 32;  concerned  chiefly  with 
measurable  motives  34-41;  methods 


of  study  42^6 ;  the  chief  questions 
which  it  investigates  50 — 1 ;  practi- 
cal issues  which  pohit  to  these 
inquiries  53 — 5 

Eden  29  n. 

Education,  general  148;  technical 
149 — 50 ;  as  a  national  investment 
151—2 

Efficiency  Earnings  288;  tend  to 
equality  288—90 

Elasticity  of  Demand  88 

England,  growth  of  free  industry  and 
enterprise  in  14 — 25;  her  geo- 
graphical advantages  14;  growth 
of  population  of  138 — 6 ;  land  tenure 
of  321 — 8;  her  gains  from  cheap 
transport  346—8 

EqtLilihrium  216,  226 

Equilibrium  amount  and  price  226 

Exchangeable  goods  57 

Expenses  of  Production  220 

External  economies  176 ;  goods  57 

Factories,  growth  of  18 — 19 
Factors  of  Production  220 
"Farmer"  American  337 — 8 
Farms,  large  and  small  337 — 344 
Fertihty  of  land,  general  conditions 

of  112 — 14;   relation  to  time  and 

place  112,  122—5 
Field  of  employment  358 
Final  utility  82  n.  (see  Marginal) 
Fisheries  127 
Fixed  capital  69 

Footpounds,  measurement  by  137 
Foreign  trade,  England's  gains  from 

362—4 
Free  competition  223,  281 — 2 
Freedom,  Economic  8 
Freedom  of  Industry  and  Enterprise  8 
Free  goods  57 

General  ability  148 

Giffen  164  n. 

Goods  56 ;  classification  of  66 — 8 

Goschen  376  n. 

Government  undertakings  ?.96 

Graded  goods,  marketing  of  212 

Grading  of  labour  407 — 8 

Greece,  Ancient  11 

Gross  Earnings  of  Management  204 

Gross  income  72,  291 

Gross  interest  311;   analysis  of  311 

— 13;    does  not  tend  to  equality 

314 
Ground-rent  128,  225  n.,  334  n. 


430 


INDEX. 


Hearn  80  n. 

Holland,  her  achievements  13 

Hours  of  labour,  limitation  of  380 — 9 

House  industry  189—90 

Howell  414  n.,  427  n. 

Hypotheses  in  economics  47  n. 

Improvements  in  Agriculture  333  n., 
345  n. 

Income  71 — 4 ;  gross  72 ;  net  72 ;  money 
72 ;  social  74 

Increasing  Return  116  (see  Law) 

Industrial  Organization  165 — 7 

"  Industry  is  limited  by  Capital"  286 

Insui-ance  against  risk  252 — 3,  312 

Integration  166 

Interchangeable  Parts  170 — 1 

Interest  73,  162;  its  relation  to  de- 
mand for  capital  267 — 9 ;  rate  of 
how  deteimined  276 — 7 ;  gross  311 
— 12  ;  net  312 ;  changes  in  rate  of 
369 

Intermediate  goods  62 

Internal  economies  176 

Internal  goods  57 

Interpretation  clause  in  economics 
54—5 

Investment  of  capital  230 — 3 

Ireland,  land  tenure  in  344 

Irregularity  of  employment  293,  376 
—7 

Jevons  31,  80  n.,  82  n.,  101  n.,  211  n., 

229  n.,  268  n. 
Joint  demand  244 
Joint  j^roducts  248,  250 
Joint- Stock  Companies  194,  196,  320 
Joint  sujjjjly  248 

Keynes  33  n. 

^f  Labour  62  (see  Earnings) 
Land  111 ;   Capital  value  of  334  n. ; 

changes  in  value  of  368 
Land  Tenure  335—345 
Law  46 ;  nature  of  46 — 48 ;  meaning 
of  the  phrase  *'  the  action  of  a  law  " 
47 
Law  of  Constant  Return  206 
Demand  86 
Derived  Demand  244 
Diminishing  Return  115,  118, 
204—9,  221, 254 ;  applies  to 
building  land  128 ;  in  rela- 
tion to  Mines  and  Fisheries 
127—8 


Diminishing  Utility  81 :  in  re- 
lation to  Law  of  Diminish- 
ing Return  from  Land  82  n. 

Increasing  Return  116,  206. 
Its  effect  on  supply  price 
206—9,  254—5 

Satiable  Wants  81 

Substitution  222—3,  231,  265. 
Its  relation  to  Law  of  Sur- 
vival of  Fittest  315,  to 
Earnings  of  Management 
317—321 

Survival  of  the  Fittest   166, 
315—17 
Leisure  388—9 

Localized  industries  177—181 
Long-j}eriodsupx)ly-price  236 

Machinery  169—176 

Mahan  44 5 

Malthus  29  n.,  129—30,  134,  259—60 

Management,  Earnings  of  73 ;  gross 
and  net  204  ;  various  forms  of  ad- 
justed by  Law  of  Substitution  317 
— 321  (see  Contents,  Book  vi.  Clis. 

VI.,  VII.,  VIII.) 

Manufacture  182 

Margin  of  Cultioation  119 

Profitableness  ^?,1 

Marginal  Disutility  108 

Demand-xjrice  82 
Dose  119 
Increment  81 
Return  119 
Utility  82 

Market  210—15 

Marketing  184—5,  250—1 

Marriage-rate,  causes  affecting  131 — 6 

Marx,  Karl  67  n.,  311  n.,  314  n. 

Material  and  Immaterial  Goods  56 

Maximum  satisfaction  216 

Mediaeval  towns  11 — 12 

Mercantilists  27  n. 

Metayer  system  336,  338  n. 

Migration,  hindrances  to  in  Middle 
Ages  134,  from  country  to  town 
141—2 

Mill,  John  Stuart  31 ;  on  Comte  33  n. ; 
on  Capital  69  n.,  85  n. ;  on  grades 
of  labour  152 — 3 ;  on  cost  of  pro- 
duction 220  n. ;  on  wages  260, 286  n., 
347,  410 

Mines  127 

Minimmn  wage  409 

Mobility  of  labour  151—4,  305—7 

Money  9,  its  use  as   a  measure  of 


INDEX. 


431 


motive  37 — 8 ;  changes  in  marginal 

utility  of,  35—7,  83,  102—3 
Money  Cost  of  Production  220 
Money  Income  72 
Monopolies  255 — 7 
Monotony  of  life,  and  in  some  cases 

of  work,  diminished  by  machinery 

174—5 
Mmu-o  427 

National  Dividend  68,  261,  269—270 

National  Income  270 

National  Wealth  60 

Necessaries  for  life,  for  efficiency, 
conventional  63 — 5 

Net  Advantages  72—3,  294—5 

Net  Earnings  of  Management  204 

Net  Income  72 

Net  Interest  311 — 12,  tends  to  equality 
314 

Net  Product  of  labour  267  n. 

Netherlands,  agriculture  in  339 

New  countries,  causes  of  high  wages 
and  interest  in  358 — 361 

Nominal  Wages  291 

Normal  47 ;  elasticity  of  term  234— 
5;  supply  jirice  223 — 5  (see  Con- 
tents, Book  V.  Chs.  III. — V.) 

Open  Spaces,  public  interest  in  345 
Organization  of  industry  165 — 7 
Organized  Markets  214 

Partnership  193 

Peasantproprietors319,336— 8,343— 4 

Periods,  long  and  short  234 — 243 

Personal  capital  70 
goods  54 
risks  314 
wealth  58 

Physiocrats  27,  258—9,  274 

Piece-work  wages  288,  410 — 11 

Plato  165 

Political  Economy.    (See  Economics) 

Poor-law,  its  influence  on  population 
135 ;  on  saving  158 

Population,  Doctrine  of  129—130; 
causes  that  govern  the  growth  of 
131 — 6;  pressure  on  the  means  of 
subsistence  of  126,  205—209,  379— 
380 

Poverty,  a  cause  of  degradation  2, 
293-4,  295,  298 

Price  9 ;  a  measure  of  utiUty  82 

Price,  L.  L.  427  u. 

Prime  Cost  232 


Producers'  Bent  109  n.,  222  n.  (see 

Rent) 
Production  on  a  large  scale  182 — 7; 

339—342 
Prodtiction  goods  62 
Productive  Consumption  63 
Profit  sharing  198,  356—7 
Profits  73,  323;  how  far  tendency  to 

equahty  323—327;   "fair"  rate  of 

323;  in  relation  to  fluctuations  of 

price  329—30 
Progress,  its  influence  on  values  358 

—389 

Quasi-Rent  241;  its  relation  to  Sup- 
plementary Cost  241 — 2 ;  its  relation 
to  rent,  242 — 3  n. ;  of  capital  411  n. ; 
of  laboui-  404 — 5 ;  of  businesses  328 
—9,  355—7,  402 

Raising  the  Demand  Schedule  85 

Rate  of  Profits  ili 

Real  and  Money  Income  72 
Cost  of  Production  220 
Wages  291 

Reformation  16 

Remuneratory  Capital  71  n. 

Rent  73—4,  121,  128,  331—4;  ground 
221  n.,  225  n.,  334  n.;  of  natural 
abilities  309  n.,  330  n.;  in  rela- 
tion to  cost  of  production  221 — 2, 
242 — 3  n. ;  difference  between  it  and 
other  earnings  277 — ^9;  in  relation 
to  quasi-rent  242— 3  n.,  277— 8  n., 
334  n. ;  and  rise  in  value  of  produce 
333  n.;  and  agricultural  improve- 
ments 333  n.;  effect  of  progress  on 
368 

Representative  Firm  206,  225 

Reproduction,  Cost  of  253  n. 

Residuum  377 

Ricardo  29,  31 ;  on  law  of  duninishing 
return  124 — 6;  on  rent  221  n.;  on 
value  229  n.,  271  n. ;  333  n.,  335  n. 

Risk  252—3,  312—14 

Rival  commodities  87  n. 

Ruskin  37—8 

Sargant  163 

Schmoller  45 

Secular  movements  of  price  240  u. 

Senior  77 

Settlement  Laws  134 

Shift  system  382—3 

Shopkeeping  187 

Short-peHod-supply -price  236 


432 


INDEX. 


Skill,  a  relative  term  146 — 7 

Slavery  3 

Sliding  scales  413  n.,  427 

Small  holdings  392 

Smith,  Adam,  on  the  word  value  8 ; 

his  genius  28 — 9 ;  on  wealth  58 ;  on 

capital  67;   on  division  of  labour 

166,  168,  174  n. ;  on  wages  258—60, 

291,  294 
Social  capital  67 ;  Income  74 ;  Law  46 
Specialised  ability  148 ;  Capital  69 
Stable  Equilibrium  226;    theory   of 

219—229 
Standard  of  Comfort  in  relation  to 

wages  379—380 
Standard  of  life  SIS 
Stock  Exchange  securities  213 — 4 
Strikes,  cost  of  406—7 
Subsidiary  trades  179 
Substitution  (see  Law  of) . 
Supplementary  Cost  232,  242  n.,  251 
Supply,  law  of  223 
Supply  Price  109;    long-period    and 

short-period  234—243 
Supply  Schedule  109,  223 
Surplus  Produce  120;  its  relation  to 

Kent  121,  221— 2  n.,  331—4 
Sttrvival  of  the  Fittest,  law  of  166, 

315—17 
Sweating  system  418 

Taxation  35—7,  383  n. 
Technical  education  149—150,  206—7 
Temporary  equilibrium  216 — 18 
Thornton  398  n. 
Th linen,  von  101  n. 
Time,  the  element  of,  in  economic 
problems  92,  215,  234—243,  346—8 
Time  Earnings  288 
Total  utility  81 
Town  hfe,  influence  of  121 — 2 


Trade  Capital  67 

Trade  Combinations  302—3,  357 

Trade  Federation  414 — 15 

Trade,  regulation  of  427  n. 

Trade  Risks  313 

Trade-Unions  20,  22,  244—7,  302—3, 

357,  390—427 
Transferable    and    Non-transferable 

Goods  61  n. 
Transport  industries  181,  187;  their 

influence  on  value  363—4 
Truck  system  292  n. 
Turnover,  profits  on  326 — 7 

Undertaker  188 

Undertaking,    Earnings    of    68    (see 

Management,  Earnings  of) 
Unskilled  labour  147 
Utility,  61, 81 ;  Marginal  82 ;  Total  81 ; 

Measurement  of  99 — 110;   Utility 

in  relation  to  Cost  of  Production 

and  Value  228-9 

Value  8 

Wages  (see  Earnings) 

Wages-Fund  theory  261,  284—6 

Waiting,  rather  than  abstinence  re- 
warded by  interest  162 

Walker  260 

Wants  in  relation  to  Activities  76 — 80, 
378—380 

Wealth  56—60;  and  well  being  1—2, 
103—6;  growth  of  155—164,  369 

Webb  391  n. 

Women's  Wages,  influence  of  Pro- 
gress on  373—4,  421 

Work-Fund  385 

Yeomen,  English  15 
Young,  Arthur  29  n.,  336 


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